The stock market is on a tear, with the S&P 500 surging higher and confirming the onset of a beloved investor era: a bull market. During such times of growth and enthusiasm, companies focused on expansion and consumer demand tend to thrive, propelling the market gains we are currently witnessing.
While caution may be warranted when considering investments in rapidly ascending firms, some companies are just scratching the surface of their long-term potential amidst recent stock price spikes. Here are two standout stocks that are soaring and are prime candidates for investment consideration.
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Target’s Recovery Strategy
Target (NYSE: TGT) faced challenges over the past few years due to escalating inflation impacting consumer purchasing power. However, the company leveraged its strengths, such as the integration of its stores in the supply chain and the success of its proprietary brands, among others. Target also initiated an efficiency drive to enhance its operations.
Target’s recent financial report showcased significant progress, with notable improvements across various metrics. Operating cash flow doubled year over year to $8.6 billion, operating margin increased by nearly two percentage points to 5.3%, and both GAAP and adjusted earnings per share surged by approximately 50% compared to the previous year. Furthermore, Target achieved cost savings exceeding $500 million.
This financial resurgence indicates a positive trajectory for Target, with its retail outlets poised to continue driving growth. As CEO Brian Cornell highlighted in a recent earnings call, brick-and-mortar stores remain a vital hub for shopping in the U.S. With a modest forward earnings multiple of 17, even after a 17% uptick this year, Target presents a compelling opportunity as the U.S. consumer landscape rebounds and prospers over the long term.
Amazon’s Adaptation and Resilience
Amazon (NASDAQ: AMZN) weathered turbulent times in recent years due to inflationary pressures and higher operational costs. Nevertheless, the company undertook a comprehensive restructuring effort that is already yielding positive results and is anticipated to bolster profitability in the future.
During the most recent quarter, Amazon reported robust growth in net sales and a more than quadrupled operating income. The success stems from the company’s expansion in e-commerce and the flourishing cloud computing division, Amazon Web Services (AWS). Historically, AWS has been a key profit driver for Amazon, a trend that is set to endure. In the quarter, AWS contributed $7.1 billion in operating income, constituting 54% of Amazon’s total operating income.
Furthermore, Amazon is reaping rewards from its investments in artificial intelligence (AI), optimizing its operations for efficiency gains and customer satisfaction through expedited deliveries. AWS offers a broad spectrum of AI services to clients, ranging from hardware components to tailored large language models, enhancing its market appeal.
Despite a 15% ascent this year, Amazon trades at a forward earnings multiple of 41, down from over 56 a few months ago. This valuation presents a value opportunity for a company well-positioned to capitalize on a bull market environment and long-term growth prospects.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon and Target. The Motley Fool has positions in and recommends Amazon and Target. The Motley Fool has a disclosure policy.