Buying shares of growing companies and holding them through the inevitable bumps in the road is the best wealth-building strategy for retirement savers. The important thing to remember is that lower valuations are a key ingredient for rising stock prices, and some great companies are currently trading at attractive prices.
If I were allocating $1,000 right now, I would consider splitting that equally between Amazon (AMZN -1.93%) and Brookfield Asset Management (BAM 0.76%) this month. Let’s look at what these companies have going for them that should lead to attractive returns.
Shares of Amazon are currently down 45% from their all-time high. The deceleration in revenue growth on the retail side is the main reason the stock slid last year, but Amazon will see its retail business reaccelerate at some point.
E-commerce has gradually increased its share of total retail spending over the last few decades, but it’s still less than 15% of the retail sector in the U.S. That leaves a lot of room for a well-financed tech-oriented business like Amazon to win more customers over the long term. eMarketer forecasts the e-commerce market to reach $7 trillion by 2025.
But Amazon is more than retail. 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 grow the value of the business substantially over the next decade.
Non-retail services now make up 54% of the business. The opportunities in advertising alone could drive this percentage much higher. For example, ad services made up only 7% of Amazon’s top line in the fourth quarter but grew 23% year over year — one of the company’s fastest-growing segments. At $11.6 billion in quarterly revenue, ad services represents a multibillion-dollar opportunity for Amazon, where third-party brands want exposure to over 200 million Prime members.
Investors shouldn’t hesitate to buy shares of this top stock when it’s trading at a discount. On a price-to-sales basis, Amazon stock is at its cheapest level since the beginning of 2015. It should deliver great returns from these lows.
Brookfield Asset Management
With over $800 billion of assets under management, Brookfield is one of the largest owners of real assets. By real assets, we’re talking infrastructure, real estate, and renewable energy, among others.
A $1,000 investment in Brookfield stock 10 years ago would have grown to be worth $6,000 at the stock’s peak a few years ago. In December, the company split into Brookfield Corporation, which owns 75% of the asset management business, with Brookfield Asset Management owning the balance.
Brookfield Asset Management is the stock that investors should buy right 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 yield.
The company owns some of the highest-quality real estate out there, including Canary Wharf in London and the Atlantis Hotel in the Bahamas.
Brookfield Asset Management is also a great stock to benefit from other opportunities that are inaccessible to individual investors. For example, the company recently agreed to fund half of a $30 billion chip manufacturing facility for Intel. Another recent deal was Deutsche Telekom‘s agreement to sell 51% of its towers business to a group of investors that includes Brookfield.
These opportunities will only increase over the next decade. The shift to alternative assets is a massive megatrend worth trillions of dollars. Management is sticking with its long-term target to deliver 15% annualized returns to shareholders. That’s enough to double your money in five years, which is consistent with the stock’s return over the last few decades.
Investors get the upside 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 declared a quarterly dividend payment of $0.32 per share, supported by the company’s distributable earnings per share of $1.28 in 2022. As management continues to invest and grow assets, investors can expect more earnings and further increases in the dividend.
On that note, the company just completed a strong year of fundraising, bringing in $93 billion of capital to invest, and management expects another great year. The recent dip is a perfect opportunity to buy shares before more asset growth and, potentially, increasing dividends send the share price higher.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in 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. The Motley Fool has a disclosure policy.