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Motley Fool: Dominant – and undervalued

If you’ve ever wanted to be an Amazon.com (Nasdaq: AMZN) shareholder, this is a great time to buy as its shares were recently down 47% from their 52-week high.

While Amazon.com does face some challenges, they seem to already be factored into the stock price. The year 2022 was rough for the company, and its revenue growth took a breather as the global economy headed into the holiday season amid weak consumer spending and high inflation rates. Indeed, Amazon.com posted a net loss of some $3 billion in the first three quarters of the year

But things could improve this year as Amazon.com slashes costs. It has laid off thousands of corporate and tech employees, cut new businesses and closed or canceled plans for dozens of warehouses. Its Amazon Web Services cloud computing business continues to grow briskly, and its bottom line should improve in e-commerce as it rebalances costs and continues growing.

Amazon.com still has plenty of competitive advantages, such as scale, strong customer service and a powerful distribution network – and it’s a mistake to assume it won’t return to earlier profitability levels. (John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and has recommended Amazon.com.)

Ask the Fool

Q. What’s the “advance-decline” ratio? – G.K., Decatur, Illinois

A. It’s an indicator that some people use to gauge market sentiment. It simply takes the total number of stocks that are trading above where they last closed and divides that by the total number of stocks trading below where they last closed.

There are close to 6,400 stocks on the New York Stock Exchange and the Nasdaq Composite combined. If 4,000 of them are trading higher than their last closing price while 2,400 are trading at a lower level, the advance-decline, or A/D, ratio would be 4,000/2,400, or 1.67. A number above 1.0 suggests a bullish market while a number below suggests a bearish one.

The A/D ratio can be insightful because many stock indexes are weighted to heavily favor large companies and do not reflect how small companies are doing. The A/D line treats each company equally as a single data point.

When the A/D ratio diverges from big indexes – for example, it’s been showing more companies falling than rising while the major stock indexes have risen – that may be a sign of trouble ahead.

In general, it’s best to avoid trying to time the market. Simply invest your long-term dollars in great companies trading at reasonable prices – or in low-fee broad-market index funds.

Q. What do brokerages charge to buy or sell a stock? – H.D., Biloxi, Mississippi

A. Decades ago, it might have cost you hundreds of dollars, but these days, major brokerages typically charge less than $10 per trade while many charge $0. Good brokerages also generally offer other services, too, such as stock research, banking and/or financial planning. Learn more at Broker.Fool.com.

My dumbest investment

My worst investment was selling my 200 shares of Facebook (now called Meta Platforms) at $24 per share. I made $400, which seemed good at the time. Of course, now the stock is trading around $120 per share. I learned a big lesson: to hold. – J.M., online

The Fool responds: You certainly learned that lesson the hard way, missing out on a gain of close to $20,000. But don’t beat yourself up too much. You couldn’t have known then just how big Facebook would get. (There were recently around 2 billion people using Facebook each day.)

With even the most promising stocks, you can rarely be sure that they will be prospering far into the future. Still, if your research suggests that a company is likely to keep growing over many years, it’s often worth hanging on.

Indeed, Meta Platforms has seen its stock plunge over 60% from its 52-week high, in part due to the overall stock market decline and in part due to uncertainty about the company. Regulators are investigating the company for antitrust and privacy violations, and Meta has been investing heavily in the “metaverse” – which may or may not turn out to be worthwhile.

With its shares recently trading at a price-to-earnings (P/E) ratio of 12.2, well below the five-year average of 25.4, you might do a little digging to see if you’d like to own them again.


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