It’s been a brutal year for stocks, and the market got off to a stumbling start in November. With the aim of curbing inflation, the Federal Reserve announced another substantial interest rate hike early this month and signaled that more substantial rate increases could be coming down the pipeline. Macroeconomic pressures are tamping down bullish sentiment, but for patient investors, there’s a silver lining.
While the array of risk factors currently shaping the market may seem daunting, big sell-offs this year pushed valuations for some fantastic companies down to levels that leave room for huge long-term upside. Here’s a look at two top stocks that are worth buying this month.
Image source: Getty Images.
1. Amazon
Just a few days before Halloween, Amazon (AMZN 1.88%) published its third-quarter earnings report, and the results clearly spooked the market. While performance for the tech titan’s e-commerce segment actually came in better than expected, growth slowdown and margin contraction for Amazon Web Services (AWS) and weaker-than-anticipated Q4 guidance caught investors by surprise. The tech titan’s stock tumbled following the earnings release, and Amazon’s share price is now down roughly 46.5% year to date and 52.5% from the lifetime high it hit in July 2021.
While third-quarter sales grew 15% year over year and fell just shy of the analyst average estimate at $127.1 billion, Amazon is guiding for sales in the current quarter to come in between $130 billion and $140 billion, representing year-over-year growth of 8% at the midpoint of the target. That’s far removed from the rip-roaring rates of expansion that investors have seen for most of the last decade.
On the other hand, the company’s core e-commerce and cloud computing businesses continue to look well positioned for the long term. All this means the stock is worth buying on recent pricing weakness.
AMZN PS Ratio (Forward) data by YCharts
While profitability and earnings growth are taking precedence for many investors, given current economic uncertainties, Amazon is a company that’s leading multiple industries, and the company’s price-to-sales ratio is near its lowest level in roughly a decade. Between macroeconomic pressures and challenges related to Russia’s invasion of Ukraine, Amazon’s online retail and cloud infrastructure businesses are facing headwinds that are hurting results.
The good news is that the company should eventually emerge from these pressures, and the combination of leadership in e-commerce and cloud services, impressive momentum in the digital advertising space, and payoffs from other growth bets will likely help the business get back to long-term earnings growth.
Amazon is a great company. Macroeconomic headwinds and geopolitical risk factors are currently shaping market sentiment, but it’s also a great stock at current prices.
2. Take-Two Interactive
If you asked people to name the most financially successful entertainment product of all time, you’d probably get responses clustering around installments in the Star Wars or Marvel Cinematic Universe movie franchises. According to some research, the most profitable entertainment release ever is actually Take-Two Interactive‘s (TTWO -2.49%) Grand Theft Auto V — a video game that debuted in 2013 and has continued to put up stellar sales numbers ever since.
While movies and television series can be big financial hits, no other entertainment medium comes close to matching video games when it comes to keeping people active, engaged, and spending. With roughly 170 million copies shipped, Grand Theft Auto V generated billions in revenue from unit sales of the game alone, but there’s another major component to its success.
The title features an online mode and its own in-game virtual currency that users have spent billions of real-world dollars to purchase — and continued engagement for this online multiplayer mode helped transform Take-Two’s financial performance.
TTWO Net Income (Annual) data by YCharts
Along with the strengthening of the company’s overall franchise game catalog thanks to successful installments in the NBA 2K and Red Dead Redemption series, the success of GTA V has helped push Take-Two into consistent profitability. Now, Take-Two is readying another mainline installment in the Grand Theft Auto series, and the upcoming release could help the publisher enter a new growth phase.
TTWO PE Ratio (Forward) data by YCharts
Thanks to growth for key franchises and the recent acquisition of mobile games publisher Zynga, Take-Two’s business looks much less cyclical than it did a decade ago. But the GTA series remains an incredibly important performance driver, and the likely release of Grand Theft Auto VI within the next couple of years should spur big sales and earnings growth for the company.
With the company trading at roughly 23 times this year’s expected earnings and a major positive performance catalyst on the horizon, Take-Two stock looks like a smart buy at today’s prices.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Noonan has positions in Take-Two Interactive. The Motley Fool has positions in and recommends Amazon and Take-Two Interactive. The Motley Fool recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.
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