It appears election-year jitters have caused many winning tech stocks to sell off recently, despite most posting sterling results. Why? Who knows. It could be any number of reasons. Some investors may fear higher corporate taxes. Some portfolio managers may be locking in gains and reallocating to more beaten-down stocks. Very wealthy investors nearing retirement may also be looking to sell with an eye on potential capital gains tax increases for those making over $1 million per year.
Whatever the reason, winning stocks with great management teams, large competitive advantages, and long growth runways tend to keep winning. That makes times of market volatility opportunities to pick up shares at a discount. High-quality growth stocks like Amazon (NASDAQ:AMZN), Lam Research (NASDAQ:LRCX), and CrowdStrike (NASDAQ:CRWD) look like solid pickups today.
Why Amazon is a buy
There is rarely a bad time to buy Amazon. The stock has “looked expensive” for its entire corporate life, but there are good reasons for that. Amazon is attacking multiple giant global markets and operates with a longer-term mindset than most public companies under the leadership of founder and CEO Jeff Bezos.
That means Amazon makes large investments in its e-commerce delivery and cloud technology infrastructure with an eye toward five-, seven-, or even 10-year payoffs or longer. Thanks to its policy of reinvesting in long-term opportunities, Amazon’s profits are relatively low, but it continues to post stunning revenue growth for a company of its size. Last quarter, revenue surged 37%, accelerating over the 25% growth posted in the year-ago quarter. This incredible growth is coming on an annual revenue base of $350 billion.
Just about all of Amazon’s business lines are performing well right now, with the obvious exception of its physical Whole Foods stores — although online grocery delivery is more than making up for it.
Amazon’s online grocery ambitions have been, shall we say, less than stellar, though the company has had these for a long time. However, the pandemic is now necessitating consumers utilize the free grocery delivery option for Prime members. That has increased engagement with Prime memberships overall, and could spark more use of the service in the future. Earlier this summer, Amazon rolled out its new Amazon Fresh grocery store concept. It includes the company’s Go cashierless checkout option, which uses intelligent shopping carts with AI-powered computer vision.
I tend to think Amazon Go technology is underrated right now as a possible disruptive force in the enormous grocery store sector. Research firm Publicis Sapient recently said in a note, “Next year, expect to see more Amazon Grocery and Amazon Go stores with contactless technology as Amazon expands its physical store presence. 2021 will be the year when Amazon becomes a serious competitive threat in the grocery sector.”
In addition, Amazon could very well surprise with new technologies over the long term, as it shocked the world over a decade ago with the invention of cloud computing — a force that is still taking over the enterprise IT world. Down some 14% from its summer highs, now is maybe a good time to pick up shares of this long-term outperformer.
Lam Research is a great mix of growth, value, and dividends
It’s also remarkable that semiconductor equipment manufacturer Lam Research (NASDAQ:LRCX) sold off a bit after its recent earnings report, given that the company absolutely smashed expectations. Revenue increased 14%; earnings per share grew 18.6% from the prior quarter, and a stunning 46.5% and 81% over the prior year. Lam also continued repurchasing its shares and even hiked its quarterly dividend by 13% from $1.15 to $1.30.
It appears semiconductors, which were in a downturn in 2019, are actually booming in 2020 despite the coronavirus pandemic, as digital transformation has led to increased investment in mission-critical chips for 5G, AI, and the Internet of Things. Thus, it’s surprising that Lam Research only trades at 20 times trailing earnings and 14.8 times earnings expectations for next year.
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