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Online-retailing giant Amazon has made countless investors wealthier with the massive gains it has logged over the years. In the past decade alone, the stock has risen more than 1,760%.
During the pandemic, Amazon has beefed up its reputation as a recession-resistant business, accommodating the rising demand for online shopping and cloud services. Nevertheless, the end of pandemic lockdowns, supply-chain disruptions, and inflationary pressures have weighed on the company. The stock has risen by about 5% over the past 12 months, much slower than in the past.
Moreover, its net income in the third quarter fell to $3.2 billion — a consequence of higher operating costs — despite a 15% revenue increase. Expecting these challenges to continue in the fourth quarter, the company predicts a modest year-over-year revenue gain of 4% to 12%. It also believes quarterly operating income will come in between breakeven and $3 billion due to ongoing challenges, including almost $4 billion in added costs and unfavorable foreign exchange rates.
Still, while Amazon’s results have disappointed recently, the supply-chain issues and a return to offline activity are likely temporary rather than permanent disruptions. Moreover, the company picture over three quarters appears more favorable. For the first nine months of 2021, net sales increased 28% to $332 billion vs. the same period in 2020. Additionally, net income jumped 35% to $19 billion.
Amazon Web Service (AWS), which provides cloud computing help to businesses, was also a bright spot. Operating income for that segment in the third quarter surged 38% compared with a year ago. AWS also reported an operating margin of 30%. Hence, growth in the most profitable part of the company remains robust.
Further, the stock’s price-to-earnings (P/E) ratio of 65 remains at or near multi-year lows after vaulting past 100 earlier in the pandemic. Hence, investors can buy Amazon at a relative discount today. They can also take comfort in the fact that the most profitable part of the company still benefits from robust growth. As retail conditions stabilize, investors could well return to Amazon stock.
Coca-Cola has struggled in recent years as the company diversifies into other beverages. With operations in virtually every part of the globe, it has been seeking to drive growth by developing products beyond its flagship soft drinks. Since acquiring Minute Maid in 1960, it has built a portfolio of more than 200 brands.
Among its more notable acquisitions was Mexico-based Topo Chico in 2017 in a push to compete in the sparkling mineral water market. Topo Chico also became the basis for moving into the alcohol market with hard seltzers earlier this year. On top of that, Coca-Cola has increased its investment in energy drinks by buying the 85% of BodyArmor it did not already own for $5.6 billion in cash. That, along with its Powerade sports drink, has helped Coca-Cola control around 22% of that market.
Coca-Cola’s expansion is also helping produce the cash flow needed to support its dividend. The company generated $8.5 billion in free cash flow in the first nine months of this year. The dividend claims $5.4 billion, or 63%, of that cash — meaning that the Dividend King‘s 59-year history of consecutive payout hikes appears safe to continue. At $1.68 per share annually, the stock offers a dividend yield of about 2.9%, well above the S&P 500 index’s 1.3% yield.
Free cash flow rose largely because revenue for the first nine months of 2021 climbed 20% from the year-ago period to over $29 billion. However, higher operating costs and income taxes offset the slower growth of the cost of goods sold. As a result, net income for the first three quarters increased a slightly more modest 17% to $7.4 billion.
Finally, let’s look at Coca-Cola’s current valuation. The stock’s P/E ratio of 28 is consistent with the company’s historical average — and just slightly lower than competitor PepsiCo‘s earnings multiple of 29. Since its shares have risen only 7% over the past 12 months, Coca-Cola may not impress growth investors. Still, with its generous and growing dividend, the stock could serve risk-averse investors well.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.