Buying shares of growing companies and holding on to them through the inevitable bumps in the road is the best wealth-building strategy for retirees. The important thing to remember is that undervaluation is a key factor in share price growth and some large companies are currently trading at attractive prices.
If I were allocating $1,000 right now, I would consider splitting it equally the amazon (AMZN 0.11%) And Brookfield Asset Management (BAM -0.22%) This month. Let’s take a look at what these companies have going for them that will lead to attractive returns.
Amazon shares are currently down 45% from their all-time high. Declining revenue growth in the retail segment was the main reason the stock fell last year, but Amazon will see its retail business re-accelerate at some point.
E-commerce has steadily increased its share of total retail spending over the past few decades, but it still accounts for less than 15% of the US retail sector, leaving plenty of room for a well-financed technology-based business like Amazon to win more customers over the long term. eMarketer predicts the e-commerce market to reach $7 trillion by 2025.
But Amazon is more of a retailer. It has growing revenue streams from cloud services (Amazon Web Services), advertising and other high-margin non-retail services. These businesses pad the company’s profits and should significantly increase business value over the next decade.
Non-retail services now make up 54% of business Advertising opportunities alone can drive this percentage much higher. For example, advertising services made up just 7% of Amazon’s top line in the fourth quarter but grew 23% year-over-year — one of the company’s fastest-growing segments. With $11.6 billion in quarterly revenue, ad services represent a multibillion-dollar opportunity for Amazon, with third-party brands seeking exposure to the 200 million Prime members.
Investors should not hesitate to buy shares of these top stocks when they are trading at a discount. On a price-to-sales basis, Amazon stock is at its cheapest level since early 2015. It will provide great returns from this low.
Brookfield Asset Management
With $800 billion in assets under management, Brookfield is one of the largest owners of real assets. By real assets, we are talking about infrastructure, real estate and renewable energy among others.
A $1,000 investment in Brookfield stock 10 years ago would have risen to $6,000 at the stock’s peak a few years ago. The company split in December Brookfield Corporationwhich owns 75% of the asset management business and Brookfield Asset Management owns the balance.
Brookfield Asset Management is the stock investors should buy now, especially if they like dividends. Management has an exceptional track record of allocating capital at attractive rates of return, and the stock currently pays a generous 4% dividend.
The company also owns some high-end real estate there, including Canary Wharf in London and the Atlantis Hotel in the Bahamas.
Brookfield Asset Management is also a great stock that can benefit from other opportunities accessible to individual investors. For example, the company recently agreed to fund half of a $30 billion chip manufacturing facility Intel. Another recent deal was Deutsche TelekomA deal to sell 51% of its tower business to a group of investors including Brookfield.
These opportunities will only increase in the coming decades. The shift to alternative assets is a huge megatrend worth trillions of dollars. Management remains committed to its long-term target of delivering 15% annual returns to shareholders. That’s enough to double your money in five years, which is in line with stock returns over the past few decades.
Investors get a boost from management making deals, but the stock’s high yield suggests the market is significantly undervaluing the business. Following the separation in December, Brookfield Asset Management announced a quarterly dividend of $0.32 per share supported by the company’s distributable earnings of $1.28 per share in 2022. If management continues to invest and grow assets, investors can expect more earnings and more growth. dividend
On that note, the company just finished a strong year of fundraising, bringing in $93 billion in capital to invest, and management expects another great year. The recent dip is a perfect opportunity to buy shares before further asset growth and, potentially, rising dividends send the share price higher.
John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. John Ballard has a position at Amazon.com. The Motley Fool has positions in and recommends Amazon.com, Brookfield Asset Management and Brookfield Corporation. The Motley Fool recommends Brookfield and Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. Motley Fool has a revealing policy.