“Buy your straw hats in the winter.” This adage is a great way to illustrate that buying quality stocks when demand is low will pay off when demand is up. As Warren Buffet once said, “Whether we’re talking about socks or stocks, I like to buy quality products when they’re on sale.”
Weaker demand for stocks generally means investors are scared and will sell high-quality, high-conviction stocks at a discount. Perhaps you’ve seen those “Chicken Little” headlines in the news sometimes, warning of trouble to come? That is a clear sign that there is fear in the market. But that fear could spell opportunity for the long-term investor. Yes you know where to look.
“Best in class” companies that have massive moats and pay impressive returns are a great place to start, and Amazon (AMZN -4.75%), intuitive surgical (ISRG -3.22%)Y AbbVie (ABBV -0.63%) These are three fantastic examples. Let’s take a closer look.
Amazon: best in class
Amazon is the undisputed leader in the cloud market. Amazon Web Services (AWS) has a 34% market share, far ahead of Microsoft Azure (NASDAQ: MSFT)and sign out of Google Cloud (NASDAQ:GOOG)(NASDAQ:GOOGL) into the powder as shown below.
Inflation and expenses related to labor and logistics have seriously dented retail margins, but AWS saved the day. This illustrates the strength of the Amazon ecosystem.
AWS posted $38 billion in sales in the first half of 2022 and an impressive 32% operating margin. The rest of the company hasn’t been profitable this year, but the headwinds won’t last forever. Stocks could take off when they decline, and Amazon can go back to full steam.
Don’t overlook intuitive surgery
Intuitive Surgical’s robotic-assisted system makes surgery less invasive, promotes faster recovery, and reduces complications. You may have already experienced or seen it in action, as the technology is widely adopted. There are more than 7,000 Intuitive da Vinci Surgical Systems installed.
As well as being the market leader, Intuitive is a fantastic investment. Over 70% of their revenue is recurring, meaning it comes from instruments, accessories, and services. As the machines become widely adopted, the company will make more money. Recurring revenue is vital as there are only a limited number of hospitals to place these systems in.
The company has a huge moat. Getting competitor systems approved and put into the field takes years and huge investments. This moat allows Intuitive to make huge profits. The company boasts an operating margin of close to 30%, far outperforming other medical device companies, as shown below.
Intuitive has built an impressive war chest of cash due to these high margins to the tune of $8.18 billion, or 11% of market cap, as of last quarter. These traits should allow Intuitive to bounce back sharply when the market turns.
Take advantage of tempting AbbVie performance
Solid dividend stocks can be like a feather pillow that helps you get a good night’s sleep. And if the stock is in pharmaceuticals, that’s a plus, as this area is also recession-resistant, as the products are often staples. Consider the case of AbbVie; their actions have exceeded S&P 500 by nearly 20 points this year.
AbbVie makes the arthritis drug Humira, one of the world’s best-selling drugs. That helped the company pay a nice dividend, currently yielding more than 4%, and AbbVie has increased that payout every year since the company’s inception in 2013. During this fantastic run, the annual dividend per share increased from $1, 60 at $5.64.
AbbVie outperforms many stocks because Humira biosimilars will soon be available in the US This will reduce AbbVie’s revenue from its most popular drug. However, the company reiterated its forecast of $15 billion in sales of two other drugs, Rinvoq and Skyrizi, by 2025 to fill the gap. The company has done a fantastic job of creating a drug portfolio that is much less reliant on Humira through organic growth, new products, and the acquisition of Allergen. These moves should keep dividends flowing.
We are likely to see a number of headlines talking about short-term market moves and whether or not we have bottomed out. Remember, it is not possible to measure the exact moment of the bottom of the market. Luckily, we don’t have to. The most successful shareholders invest in fantastic companies consistently over time. These three can be great additions to your portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. bradley guichard It has positions in AbbVie, Alphabet (C shares), Amazon, Intuitive Surgical and Microsoft. The Motley Fool has posts and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Intuitive Surgical, and Microsoft. The Motley Fool has a disclosure policy.