Market plunge: 2 split stocks just waiting to be bought

Soaring inflation and rising interest rates have weighed on the stock market this year. In fact, the S&P500 had its worst first half since 1970, falling more than 20% between January and June. But that hasn’t stopped the spread of stock-split mania.

With little else to get excited about, some investors have enthusiastically embraced the recent wave of stock splits, and there’s some logic to that. Forward stock splits are usually only necessary after significant stock price appreciation, which means they tend to indicate that a company is doing something right.

With that in mind, these two companies recently completed stock splits, and both stocks look like smart long-term investments.

1. Amazon

Rising costs have put pressure on Amazon (AMZN -0.91%) This year. The company posted a loss under generally accepted accounting principles (GAAP) in each of the past two quarters, marking the first time it hasn’t posted a quarterly profit since 2015. That worries some investors, but the inflation is a temporary headwind, and Amazon is well positioned to accelerate profitability down the road.

Of course, most consumers associate Amazon with e-commerce: its marketplace generated 41% of U.S. online retail sales last year, and its extensive logistics infrastructure helps create a great experience for shoppers. and sellers, reinforcing the network effects that fuel his Business. But Amazon is also the undisputed leader in cloud computing, and that should make the company more profitable over time.

In the first quarter, Amazon Web Services (AWS) captured a 33% market share in cloud services, more than the next two vendors combined, and the company is unlikely to lose its edge any time soon. Research firm Gartner recently recognized AWS as the industry leader, citing its unparalleled ability to innovate and broad portfolio as key advantages.

This is particularly noteworthy because cloud computing is much more profitable than retail. Over the past few years, AWS has consistently posted operating margins around 30%, but the operating margin on the rest of Amazon’s business rarely exceeds 5%. Even better, the cloud computing market is expected to grow nearly 16% annually to reach $1.6 trillion by 2030, according to Grand View Research.

This trend should keep AWS in growth mode for years to come, and as it becomes a larger percentage of Amazon’s revenue, the company should become increasingly profitable. But Amazon is also gaining market share in digital advertising, another high-margin industry that should boost long-term profitability.

On that note, the stock is currently trading at 2.9 times sales, a discount from its five-year average of 3.8 times sales. That’s why this split stock is a smart buy right now.

2. Shopify

Shopify (STORE 3.57%) grew at an explosive rate during the pandemic, but the company is now grappling with the same headwinds as Amazon. Consumers reacted to persistent inflation by reducing their discretionary purchases online, opting instead to prioritize essentials like food and fuel. As a result, Shopify saw sales growth slow to 16% in the second quarter from 57% a year earlier, and posted a GAAP loss of $0.95 per diluted share from earnings of $0.69 per share. diluted stock.

These disappointing results are making some investors feel bearish, but Shopify is well positioned to weather the storm and come out stronger on the other side. Its platform allows merchants to manage orders and sales on physical and digital storefronts. This includes online marketplaces like Amazon and social media like TikTok, but it also includes direct-to-consumer (DTC) websites.

This gives Shopify an edge over market operators. DTC business models are gaining traction as they give brands more control over the shopper experience, increasing the likelihood of long-lasting customer relationships. Shopify complements its software with a number of adjacent services, including payment processing, discount shipping, and financing. These tools democratize trading for traders and have fueled high demand. In fact, Shopify is the market leader in e-commerce software and its platform generated 10.3% of online retail sales in the US last year, second only to Amazon.

Looking to the future, Shopify has set in motion a growth strategy that should significantly strengthen its position in the commerce market. One facet of this strategy is the Shopify Fulfillment Network (SFN), a warehouse system complemented by predictive software and mobile robots that will eventually allow sellers to offer two-day delivery to shoppers across the states. -United.

Shopify is also working to upscale with Shopify Plus, its software platform for large businesses. Plus now offers business-to-business (B2B) tools, which means merchants can sell B2B and D2C from the same online store. This opens the door to a potentially massive revenue stream. B2B e-commerce sales are expected to grow nearly 20% annually to reach $33 trillion by 2030, according to Grand View Research.

Additionally, business-to-consumer e-commerce sales will total $5.5 trillion this year, placing Shopify in front of a tremendous market opportunity. And with stocks trading at 9.1 times sales — near a five-year low — this growth stock is a screaming buy.