Back in 2016, Bank of America/Merrill Lynch released a report that examined the performance of value stocks and growth stocks over a 90-year period between 1926 and 2016. Interestingly, value stocks have outperformed over the long run, with an average annual return of 17%, compared to 12.6% for growth stocks.
But what really stood out from the B of A/Merrill Lynch study is how these roles have reversed since the Great Recession. For about a decade, growth stocks have run circles around value stocks, with historically low lending rates to thank for this outperformance. Since growth stocks tend to lean on debt-based financing for expansion, and this financing can be had for an historically low cost (i.e., less interest expensing), it’s really ramped up the sales growth potential for certain stocks and industries.
With historically low lending rates expected to persist for some time, here’s a look at three unique growth stocks that only seem to be getting better with age.
Just as Apple has seemingly been the no-brainer investment of the past decade, Amazon.com (NASDAQ:AMZN) looks to be the no-brainer growth opportunity you won’t want to miss over the next decade. And yes, this takes into account that the company is already worth almost $1 trillion.
When most folks think of Amazon, they rightly think of its dominant retail platform. There’s certainly nothing wrong with this impression of Amazon as it’s a big reason the company has been able to generate significant sales and build up an incredible following through its Prime membership. In the first quarter of 2019, $52 billion out of $59.7 billion in net sales was essentially derived from retail sales, either through its Amazon platform, its wholly owned grocery chain Whole Foods, or other means.
But what’s particularly interesting about Amazon is that it’s the company’s cloud services for small-and-medium-sized businesses, Amazon Web Services (AWS), that’s really the key to its future growth. Not to belittle the importance of Amazon’s monstrous e-commerce market share, or the loyalty that its Prime membership brings, but none of its retail operations can hold a candle to the margins AWS brings to the table.
Out of the aforementioned $52 billion in net sales from retail, Amazon logged operating income of $2.2 billion in the first quarter. But from just $7.7 billion in AWS sales, Amazon also logged $2.2 billion in operating income. With AWS growing at a much faster pace than its traditional e-commerce business, AWS will continue to represent a larger percentage of sales over time, thereby improving margins, cash flow, and profitability. Not surprisingly, Wall Street has forecast a near-tripling in cash flow per share for Amazon between 2018 ($61.45 per share) and 2022 ($178.40 per share).
In other words, AWS makes Amazon a much more reasonably valued stock than you probably realize…
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