When it comes to investing, some treasures are meant to be held onto forever. Picture being part of a legacy, a business that not only survives but thrives over the years, gradually building wealth for generations to come. Discovering such companies is no easy feat, as most stocks don’t stand the test of time in an investor’s portfolio.
However, entering the stage are Amazon (NASDAQ: AMZN) and Hershey (NYSE: HSY), both positioned as potential candidates. Let’s delve into what sets them apart and why they merit consideration for long-term investment.
A Triumvirate of Wealth Generation
Amazon’s omnipresence in our lives is palpable. As the leading e-commerce company in the U.S., it commands a staggering 38% market share. Moreover, Amazon Web Services serves as the backbone of a significant portion of the internet.
For sports enthusiasts, Amazon has emerged as a media powerhouse, streaming National Football League matches, among a plethora of movies and shows, raking in substantial ad revenue as a result.
Amazon’s foray into these three key sectors not only displays its prowess but also the vast potential for growth, paving the way for it to evolve into a multitrillion-dollar entity. Presently, it boasts annual revenues exceeding $570 billion, with an operating profit of $85 billion that is strategically reinvested into further expansion.
The firm’s dominance in e-commerce is unparalleled, with a supply chain that manages nearly a quarter of all packages shipped within the U.S. This, coupled with a culture of unwavering innovation, solidifies Amazon’s standing and renders it a formidable force unlikely to dissipate any time soon.
AMZN price-to-CFO per share (TTM) data by YCharts; TTM = trailing 12 months.
The rationale for assessing Amazon through its operating cash flow lies in the company’s significant reinvestment efforts aimed at nurturing growth, even at its current scale. Comparing the share price to the operating cash flow per share corroborates that the stock remains attractively valued relative to its historical norms.
It’s a prudent move for investors to incorporate Amazon into their portfolios, keeping a firm grasp on it unless met with unforeseen catastrophe.
Timeless Sweetness
On the other end of the spectrum stands Hershey, the purveyor of indulgent chocolates and savory snacks. Its business model is straightforward, yet exudes a charm of its own.
What sets Hershey apart is its brand. While numerous confectionery rivals exist, Hershey’s legacy spans over a century, with its diverse range of delectables consistently ranking among Americans’ favorites all year round. Who can resist the allure of a Hershey bar, Kit Kat, Twizzlers, Heath Bar, Jolly Rancher, or a Reese’s peanut butter cup?
The brand’s popularity secures prime shelf space at retail outlets, akin to the dominance enjoyed by industry giants like Coca-Cola and PepsiCo in the beverage sector. With an estimated 24% share of the U.S. confectionery market, Hershey’s brand magic reigns supreme, outshining mere chocolate bar manufacturers.
This brand supremacy translates to financial success. Hershey operates a straightforward and highly profitable venture, boasting an impressive 22% return on invested capital. This signals robust pricing power for Hershey, aiding the company in navigating a surge in cocoa prices that threatens to squeeze profit margins.
HSY PE ratio (forward); data by YCharts; PE = price to earnings.
Although the spike in cocoa prices poses a challenge for Hershey, it presents a promising opportunity for long-term investors. The stock’s price has declined to a price-to-earnings ratio of 20, below the company’s historical average.
In due course, Hershey is anticipated to adapt to the heightened cocoa costs, with the likelihood that the shortage will abate and prices normalize once more. Utilize this transient setback as an opportunity to acquire this exceptional stock, poised to yield dividends and appreciable price growth in the years to follow.
Considering an Investment in Amazon?
Prior to diving into Amazon’s stock, ponder this:
The Motley Fool Stock Advisor analysts have pinpointed the top10 best stocks poised for substantial returns in the foreseeable future… and surprisingly, Amazon didn’t make the cut. These 10 selections have the potential to deliver exceptional returns in the coming years.
Stock Advisor equips investors with a roadmap to success, featuring insights on portfolio construction, regular analyst updates, and two fresh stock picks each month. Since 2002, the Stock Advisor service has substantially outpaced the returns of the S&P 500*.
*Stock Advisor returns as of April 1, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Justin Pope does not hold any positions in the stocks mentioned. The Motley Fool has positions in and recommends Amazon. Hershey is recommended by The Motley Fool. The Motley Fool upholds a disclosure policy.