When a stock has soared, you might think twice before buying it. You may be afraid that the player will soon run out of fuel – and you will either make a small profit, or worse, lose on this investment. But recent momentum doesn’t necessarily mean a stock has done its best and should now be avoided. Many quality companies experience periods of significant gains that last for a while, and even after this momentum wanes, these stocks still offer investors the potential for additional gains over the long term.
Some of today’s top performers fall into this category and offer you fantastic long-term prospects. They can be found in different sectors, but today three in the consumer goods sector, spread across the travel and retail sectors, represent particularly interesting investments. I’m talking about Carnival (NYSE: CCL) (NYSE:CUK), Amazon (NASDAQ: AMZN)And Costco (NASDAQ: COST). This year they are up 21%, 31% and 34% respectively. Let’s take a look at the stocks I would buy right now without hesitation.
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Carnival struggled during the early days of the pandemic when cruise operations were temporarily halted. This resulted in the world’s largest cruise line building up a wall of debt to (pardon the pun) stay afloat. The profit turned to loss and the stock price fell.
But lately, Carnival has entered calmer waters. In fact, the company is proving itself to be an excellent recovery and growth story. Carnival made a wide range of efforts to turn the tide, from cutting fuel costs to taking steps to increase travelers’ spending on board. At the same time, the company worked to pay down debt, with a special focus on variable-rate loans.
The efforts have paid off. Carnival reported record revenue and operating income last quarter. And the company’s advanced booked position exceeded last year’s record levels – at higher prices, demonstrating the strength of demand for Carnival cruises.
Today, even after double-digit gains this year, the stock is trading at a bargain at 20x trailing-12-month earnings, compared to levels above 40x before the pandemic.
Amazon is a leader in two fast-growing markets: e-commerce and cloud computing. And today, the company is also emerging as a leader in the hot field of artificial intelligence (AI). Amazon’s e-commerce business is benefiting from the company’s investments in AI as it uses these tools to become more efficient and better serve customers. This should reduce service costs and keep customers coming back.
And Amazon Web Services (AWS), the company’s cloud business, helps Amazon benefit from AI in a second way: by selling products and services to customers who launch AI programs. AWS sells everything AI customers need, from chips to a fully managed model training service. The cloud provider also offers a range of prices, from proprietary bargain chips to Nvidia‘s premium graphics processing units (GPUs).
AWS is already delivering results, with annual revenue reaching $110 billion last quarter. And Amazon has proven itself over time, delivering billion-dollar revenue and profit growth. All of this makes the stock look reasonably priced with a forward earnings estimate of 38x.
Some people may think that Costco makes most of its profits by selling groceries and a range of general merchandise to its customers. But the company generates most of its profits before customers even set foot in the warehouse. This is done through membership fees – and these have a high margin because it doesn’t cost the company much to sign up customers or renew their memberships.
This income allows Costco to maintain dirt-cheap prices on merchandise – and this in turn keeps current customers loyal and encourages others to sign up. Numbers illustrate this success, with Costco’s renewal rates steadily exceeding 90%.
Thanks to its low prices, Costco often performs well even in tough economic conditions (where people are looking for deals), making it a great stock to own over time. The company has also rewarded investors with hefty special dividends five times, the latest last year at an all-time high of $15 per share.
Costco stock may not be cheap with a forward earnings outlook of 49x, but the company’s solid business model that has delivered results and the loyalty of its members make it worth the price.
Consider the following before buying shares in Carnival Corp. buys:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool holds and recommends positions in Amazon, Costco Wholesale, and Nvidia. The Motley Fool recommends Carnival Corp. On. The Motley Fool has a disclosure policy.
3 Rising Stocks I’d Buy Right Now Without Hesitation was originally published by The Motley Fool
