Picture owning a timeless piece of a prosperous business that consistently generates wealth for generations – a dream investment. While few companies meet this high standard, Amazon (NASDAQ: AMZN) and Hershey (NYSE: HSY) certainly come close. Let’s delve into what sets them apart and why they are prime candidates for long-term investment.
Triumphant Titans of Wealth Creation
Amazon, a household name, shapes our daily lives significantly. It reigns supreme as America’s leading e-commerce giant, commanding an impressive 38% market share. Additionally, Amazon Web Services, its cloud division, serves as a backbone to a vast portion of the internet.
For sports enthusiasts, Amazon’s media arm broadcasts National Football League games, among a plethora of movies and shows, raking in billions in ad revenue annually.
Aside from its dominant presence in these sectors, Amazon’s position within the vast market landscape provides ample room for expansion, with the potential to evolve into a multitrillion-dollar enterprise. Presently, it boasts over $570 billion in revenue, generating $85 billion in operating profits, all channeled back into fueling further growth.
What sets Amazon apart is its sprawling e-commerce empire, virtually irreplicable due to its colossal size. Managing close to a quarter of all packages delivered in the United States, Amazon’s mammoth scale, combined with a culture of relentless innovation, secures its longevity in the industry.
AMZN price-to-CFO per share (TTM) data by YCharts; TTM = trailing 12 months.
Assessing the stock based on its operational cash flow is prudent, given Amazon’s continuous hefty investments in growth initiatives. Comparing the share price to its per-share operating cash flow, the stock remains attractively valued relative to its historical averages.
Investors looking to fortify their portfolios can confidently include Amazon, with no compelling reason to part ways unless calamity strikes.
Enduring Sweetness
Hershey, sitting at the opposite end of the spectrum, produces delectable chocolates and savory snacks. Though its business model is straightforward, this simplicity becomes its strength.
Hershey’s allure lies in its illustrious brand heritage. While other confectionary brands exist, Hershey’s legacy, spanning over a century, and its beloved brands consistently rank among Americans’ favorites year-round. Who can resist a Hershey bar, Kit Kat, Twizzlers, Heath Bar, Jolly Rancher hard candies, or a Reese’s peanut butter cup?
The company’s brand affinity secures prime retail space, akin to Coca-Cola and PepsiCo in the beverage realm. Commanding around 24% of the U.S. confectionary market, Hershey’s dominance showcases the magic its brand wields.
This brand strength reflects in its financials. Hershey operates a straightforward yet highly profitable model, boasting an impressive 22% return on invested capital. Essentially, for every dollar Hershey invests in its operations, it reaps $1.22 in return. This underscores Hershey’s pricing power, crucial in mitigating the impact of soaring cocoa prices on profit margins.
HSY PE ratio (forward); data by YCharts; PE = price to earnings.
While the cocoa price surge poses challenges, it presents a window of opportunity for long-term investors. With shares now trading at a price-to-earnings ratio of 20, below the company’s historical average, Hershey stands as a compelling long-term investment.
Over time, Hershey is expected to adapt to elevated cocoa prices, with a high likelihood of market normalizing. Seize this momentary predicament to acquire this exceptional stock, reaping dividends and capital appreciation in the years ahead.
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John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), sits on The Motley Fool’s board, while Justin Pope holds no positions in the listed stocks. The Motley Fool has positions in and endorses Amazon, and also recommends Hershey. The Motley Fool abides by a disclosure policy.
The author’s views expressed herein solely represent their opinions and not necessarily those of Nasdaq, Inc.
