Market crash: 2 fractional shares asking to be bought

Rising inflation and rising interest rates weighed on the stock market this year. In fact the S&P 500 had its worst first half since 1970, falling more than 20% between January and June. But that hasn’t stopped the spread of the stock split craze.

With little else to get excited about, some investors have cheered on the recent wave of stock split, and there is logic to that. Forward stock splits are typically only needed after a significant stock price appreciation, which means they tend to indicate that a company is doing something right.

With this in mind, these two companies have recently completed stock splits and both stocks look like smart long-term investments.

1. Amazon

Rising costs have put pressure on Amazon (AMZN 4.28%) this year. The company has made a generally accepted GAAP loss in each of the past two quarters, marking the first time it has failed to achieve quarterly profits since 2015. This has worried some investors, but inflation is a wind. temporary reverse and Amazon is well positioned to accelerate profitability along the way.

Of course, most consumers associate Amazon with ecommerce – its market fueled 41% of online retail sales in the U.S. last year, and its extensive logistics infrastructure helps create a great experience for shoppers and vendors, enhancing the network effects that power its business. But Amazon is also the clear leader in cloud computing, and that should make the company more profitable over time.

In the first quarter, Amazon Web Services (AWS) captured a 33% market share in cloud services, more than the next two providers combined, and the company is unlikely to lose its lead anytime soon. Research company Gartner recently recognized AWS as an industry leader, citing its unmatched innovation capacity and broad portfolio as key benefits.

This is particularly noteworthy because cloud computing is far more profitable than retail. In recent years, AWS has consistently posted operating margins of around 30%, but the operating margin on the rest of Amazon’s business rarely exceeds 5%. Better yet, the cloud computing market is expected to grow nearly 16% annually to reach $ 1.6 trillion by 2030, according to Grand View Research.

This trend should keep AWS in growth mode for years, and as it becomes a larger percentage of Amazon’s top line, the company should become increasingly profitable. But Amazon is also gaining market share in digital advertising, another high-margin industry that is expected to boost long-term profitability.

In that regard, shares currently trade at 2.9 times sales, a discount from the five-year average of 3.8 times sales. That’s why this fractional stock is a smart buy right now.

2. Shopify

Shopify (SHOP 9.96%) It grew at an explosive rate during the pandemic, but now the company is battling the same headwinds as Amazon. Consumers responded to persistent inflation by reducing discretionary online shopping, choosing instead to prioritize essentials like food and fuel. As a result, Shopify saw sales growth slow to 16% in Q2, down from 57% a year ago, and posted a GAAP loss of $ 0.95 per diluted share, down from profit. of $ 0.69 per diluted share.

These disappointing results make some investors feel bearish, but Shopify is well positioned to weather the storm and emerge stronger on the other side. Its platform allows merchants to manage orders and sales on physical and digital storefronts. This includes online marketplaces like Amazon and social media like TikTok, but it also includes direct-to-consumer (DTC) websites.

This gives Shopify an edge over the market players. DTC business models are gaining momentum because they give brands more control over the shopper experience, increasing the likelihood of lasting customer relationships. Shopify integrates its software with a number of adjacent services, including payment processing, discounted shipping, and financing. These tools democratize trade for traders and have fueled strong demand. In fact, Shopify is the market leader in ecommerce software, and its platform fueled 10.3% of online retail sales in the United States last year, second only to Amazon.

Looking ahead, Shopify has set in motion a growth strategy that should significantly strengthen its position in the commerce market. One aspect of that strategy is the Shopify Fulfillment Network (SFN), a warehouse system enhanced with predictive software and mobile robots that will ultimately allow sellers to offer two-day deliveries to buyers in the United States.

Shopify is also working to grow into the high-end market with Shopify Plus, its software platform for larger businesses. It also now offers business-to-business (B2B) commerce tools, which means merchants can sell B2B and D2C from the same online store. This opens the door to a potentially huge revenue stream. According to Grand View Research, B2B ecommerce sales are expected to grow nearly 20% annually to reach $ 33 trillion by 2030.

Additionally, business-to-consumer ecommerce sales this year will total $ 5.5 trillion, putting Shopify in front of a huge market opportunity. And with shares trading 9.1x sales – close to a five-year low – this growing stock is a huge buy.

John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Trevor Jennewine has positions in Amazon and Shopify. The Motley Fool has locations and recommends Amazon and Shopify. The Motley Fool recommends Gartner and recommends the following options: long January 2023 $ 1,140 calls on Shopify and short January 2023 $ 1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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