Stocks have been on a wild ride over the last week, and these two big names are ones that you should consider buying now that they are trading at a bit of a discount and holding onto for the long term.
When looking for companies to hold forever, the best companies to look at are those that are paving the way for the future in their industries and have massive addressable markets that they can grow into. And these two companies fit the bill.
Both Amazon (NASDAQ: AMZN) and PayPal (NASDAQ: PYPL) are leaders in their respective fields—e-commerce and digital payments—and both have been around for more than a decade but are still growing like startups. And for both, there’s no sign of them slowing down.
To be sure, neither Amazon nor PayPal are undervalued stocks as both trade at a premium. But their high valuations speak to the growth they’ve already demonstrated and the market’s expectation that they still have left to deliver.
While you can’t go back in time to buy Amazon when it was still cheap, you can watch for price drops on stocks like these for an entry point. And both of these companies have just had such drops.
Here’s why you should consider taking the plunge on these stocks now and holding them forever.
Amazon (NASDAQ: AMZN)
Amazon (NASDAQ: AMZN) is down nearly 9% in the last week, but analysts at Stifel Nicolaus say the stock is a Buy and gave it a 12-month price target of $2,525 last week – nearly 43% higher than Thursday’s closing price.
Stifel Nicolaus analyst Scott Devitt said they were placing Amazon on the firm’s elite Select List. “We are replacing Alibaba (NYSE: BABA) with Amazon on the Stifel Select List in light of greater near-term optimism for Amazon, an uncertain China macro environment, and the opportunity created by recent AMZN price movement,” Devitt wrote in a note to clients last week.
And Devitt is right to be optimistic. Amazon is a leader in two massive and fast-growing spaces, e-commerce and cloud services. It is also working on its evolving ad business and is expected to deliver impressive revenue growth over the long term.
“Strong momentum in the higher-margin cloud services and advertising business are elevating the near/intermediate-term margin trajectory for the company,” Devitt wrote in his report.
What’s most interesting to me about Amazon, though, is its massive growth potential. In the U.S., Amazon feels huge and its presence is everywhere. But the company still has major growth opportunities in same-day delivery, grocery delivery, and smart-home devices.
But those aren’t its only areas for possible growth. Amazon still has yet to break into many markets around the world, which is where the real growth—especially in Prime memberships—will come from on the retail side.
Amazon has been building its online retail empire for more than 20 years, and its trailing 12-month sales still grew by nearly 40% in Q2. So when founder and CEO Jeff Bezos says “It remains day one” at Amazon, it seems he’s justified in saying so.
Considering the company’s growth potential and dominant positioning in both e-commerce and cloud computing, Amazon is a stock you should consider buying now and holding forever.
PayPal Holdings (NASDAQ: PYPL)
Digital payments giant PayPal (NASDAQ: PYPL) is down nearly 15% for the month, but this weakness looks like a good buying opportunity, and many investors are taking advantage Friday after the company’s Q3 disclosure.
In Q3, the company reported earnings per share of $0.58 compared to the consensus estimate of $0.54 – that represents 26% year-over-year growth in EPS over the same quarter a year ago. Revenue was a slight beat at $3.68 billion compared to analyst’s average forecast of $3.66 billion. This revenue beat also represented double-digit growth with a 13.6% year-over-year lift over Q317.
But the biggest news was with PayPal’s digital wallet, Venmo. The company says that its efforts to make money off of Venmo are finally nearing a “tipping point,” and CEO Dan Schulman said on the earnings call that 24% of Venmo users had engaged in a monetized transaction since launch, a figure that is up 17% since the company’s last report.
“We saw significant advances across a wide array of Venmo monetization efforts,” Schulman said on the call.
And indeed, the company saw some astounding numbers from some of its individual initiatives for the app. “Pay with Venmo,” a push to get users to choose Venmo for online purchases, saw 195% growth in volume month-over-month. The Venmo debit card saw volume climb 320% month-over-month. And the company also processed more than $1 billion in instant-transfer—where users pay a fee to instantly transfer funds from their Venmo balance to their bank accounts—volume on Venmo in just the month of September alone.
This is encouraging considering that Venmo is expected to be an area of high growth for PayPal. CFO John Rainey said, “We expect to see improvement in our Venmo economics next year and each year thereafter.”
Given the company’s strong positioning in the digital payments space, BMO Capital Markets initiated coverage of PYPL late last month rating it an Outperform with a twelve-month price target of $112 – nearly 33% higher than the price as of this writing.