For many investors, $1,000 is a solid amount of money. And with the S&P 500 down by 20% over the last year, now is a great time to shop for deals in the market. Let's discuss reasons why Amazon (NASDAQ: AMZN) and Phillip Morris International (NYSE: PM) could turn your money into significantly more over the long term.
Like many big tech companies, Amazon is reeling from a tough combination of rising rates, inflation, and a possible near-term recession. But while these headwinds caused the stock to lose roughly half its value last year, they don't change its long-term thesis.
Amazon is a bet on global e-commerce growth and cloud computing -- two secular megatrends that show no signs of reversing any time soon. In the U.S. and other developed regions, demographic shifts will help power online shopping adoption. In developing regions like Africa and Latin America (where Amazon plans a big expansion this year), technological improvements will help bring previously untapped markets online.
With 300 million active users, Amazon's massive scale makes it well-positioned to capture industry growth. More users attract more merchants and more competition, increasing the quality of the platform through what's called a network effect. Amazon's scale also allows it to expand into related industries like digital advertising, which has good synergy with its shopping-motivated user base.
With a forward price-to-earnings ratio (P/E) of 41, Amazon is valued significantly higher than the S&P 500 average of roughly 20. This premium likely represents the market's belief that the company's growth story is far from over and it can bounce back from its near-term challenges.
Phillip Morris International
With recession fears mounting, defensive investors should look no further than tobacco giant Phillip Morris International. Not only is this cigarette maker geographically diversified, but its rapid pivot to reduced-risk tobacco products could put it head and shoulders above the competition.
The tobacco industry is recession resistant because its products are addictive -- people tend to keep using them even in bad economic times. For investors, the downside of this is that the industry is heavily regulated. Phillip Morris' U.S. counterpart, Altria Group, learned this the hard way when its partly owned vaping start-up Juul Labs was banned from selling its products in the country after a series of troubles. (The decision is currently being appealed by Juul.)
Phillip Morris is shielded from such risk because of the immense geographic diversification of its revenue streams across Europe, Asia, Africa, and Latin America. No one reporting segment represents more than one-fourth of total company revenue.
The company is also moving away from cigarettes altogether. By 2025, it plans to earn 50% of revenue from safer sources like heated tobacco units, which release nicotine by heating instead of combustion, to release less harmful chemicals.
With a P/E multiple of 17, Phillip Morris is valued slightly cheaper than the market average. Its dividend yield of 5% is icing on the cake for investors.
Which stock is best for you?
Amazon and Phillip Morris both offer investors an excellent opportunity to turn a $1,000 investment into much more over the long term. But they serve different investment strategies.
With strong moats in expanding industries, like e-commerce and cloud computing, Amazon is a growth stock. Phillip Morris is ideal for investors who prioritize safety and reliable dividend income over share-price appreciation.
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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. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.