3 Top Stocks to Buy in May
If you're looking for quality stocks to hold for the long haul that also offer near-term return potential, you're in the right place. There are several outstanding companies that are coming off a challenging year but are starting to turn the corner, and their share prices are responding.
A team of Motley Fool contributors see positive momentum building at Amazon (NASDAQ: AMZN), Walt Disney (NYSE: DIS), and Coupang (NYSE: CPNG). Here's why they believe now is a great time to buy these stocks.
Amazon just reported record profits
John Ballard (Amazon): Amazon has been a rewarding investment for many years. The stock would have turned a $1,000 investment 10 years ago into $11,000 today. Amazon just posted first-quarter revenue growth of 13% year over year, which shows it still has a lot of opportunities to expand the business and create returns for shareholders.
Amazon's e-commerce business is not growing as fast as it was five years ago, but management is doing a great job improving efficiency and delivering goods faster to customers. This helped drive a record operating profit last quarter of $15 billion.
Importantly, these record profits will give management greater resources to invest in the technology infrastructure to grow its lucrative cloud services business. Amazon Web Services (AWS) revenue accelerated 17% year over year in the quarter, thanks to growing demand for artificial intelligence (AI) services.
It can't be emphasized enough what Amazon's improving retail profits means for the future. Improving inventory efficiency has helped Amazon generate $50 billion in free cash flow over the last year. With more cash flow coming in the door, management plans to "meaningfully increase" capital spending in 2024 to support growing demand in AWS.
The ability to grow profits while investing for the future is why the stock will likely hit new highs in 2024 and remain a great investment for years to come.
All of Disney's parts are starting to work together again
Jennifer Saibil (Disney): Disney has struggled through several years of challenges, and its stock price reflects that -- it's down 40% over the past three years. But things have started to turn around, and Disney stock is up 23% this year as investors gain some confidence.
One big factor is the return of former CEO Bob Iger. During his previous tenure, Disney made some major moves that propelled it to the powerhouse entertainment company it is today, including the acquisitions of Pixar and Marvel Studios. These provide it with more of the unmatched assets that it turns into sequels, theme park attractions, products, and sales.
Parks and experiences, which were crushed under the weight of pandemic closures, are now back to high demand and strong momentum. It was the company's best-performing segment by sales growth in the 2024 fiscal first quarter (ended Dec. 30), increasing 7% year over year. Disney's 12 theme parks are unparalleled globally, and they're a major element of the Disney magic that brings in fans and dollars. Iger said the company would invest $60 billion in parks development over the next 10 years.
Probably the main reason investors are getting more excited, though, is that Disney's streaming efforts are getting very close to profitability. After bleeding cash for the past few years, it reported a major improvement in efficiency, with a $138 million operating loss in the first quarter vs. $984 million the year before. It recently launched an ad-supported tier for Disney+, and it's expecting 5.5 million to 6 million new Disney+ subscriptions in the second quarter. Management expects streaming to become profitable in the fourth quarter, which is just a few months away.
There have been other positive updates as well. Disney announced a partnership with several other networks to create a fully loaded sports streaming network that will finally answer the question of what to do about ESPN, which Disney hasn't been able to offload from cable to streaming effectively. It also reinstated its dividend, which had been suspended since 2020, in November.
Disney reports second-quarter earnings on May 7, and if it demonstrates further progress its stock will keep climbing.
E-commerce is coming back
Jeremy Bowman (Coupang): Amazon's recent earnings report shows there's plenty of growth left in e-commerce around the world. The tech giant just reported double-digit revenue growth in both its North America and International e-commerce segments, reflecting solid demand.
That should bode well for other e-commerce stocks, including Coupang, which is following a similar playbook to Amazon in South Korea. Now could be a great buying opportunity for the stock, as it's down 67% from its peak after its IPO in 2021.
While long-term investors may be disappointed in the stock's performance so far, Coupang is showing signs of turning the corner. The company just raised the price of its Prime-like Rocket Wow membership subscription from $3.60/month to $5.70/month, a move that should expand margins and enable the company to invest in newer parts of the business like food delivery and video streaming. It's also investing in AI, as it has autonomous robots that help with picking and packing.
Coupang is set to report first-quarter results on May 7, and the news could set the tone for a long-term recovery in the stock as it expands with new businesses in Korea and looks to expand outside of its home country.
There are a number of other attributes that make Coupang attractive. Unlike a number of other e-commerce companies, it's solidly profitable. In 2023, it reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.1 billion on revenue of $24.4 billion, and had an adjusted net income of $465 million.
Coupang also looks like a good value for its growth potential, as it trades a price-to-earnings ratio of less than 30. Keep an eye on the earnings report next week, as the stock could soar on good news.
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3 Top Stocks to Buy in May was originally published by The Motley Fool
