When it comes to thinking about stocks within the Dow Jones Industrial Average, one might be tempted to overlook this index, dismissing it as a hub of outdated industrial giants incapable of delivering robust returns in today’s market landscape. However, as time advances, the Dow, under the stewardship of S&P Global, has shed its legacy skin, shuffling out archaic companies like Alcoa and General Electric to usher in a new wave of dynamic stocks poised to navigate the digital age with finesse.
Within this ever-evolving index, there exist pockets of potential for investors seeking exponential growth. Two stalwarts that have stood the test of time amidst market fluctuations are Amazon (NASDAQ: AMZN) and Nike (NYSE: NKE). Let’s delve into these juggernauts and uncover why they are positioned to soar not just in 2024 but well beyond.
Amazon’s Dominance in the Cloud Realm
While Amazon is universally recognized for its e-commerce prowess and Prime subscription services, the real growth propellant lies in its Amazon Web Services (AWS) arm. As the leading cloud provider, AWS serves as the backbone for a myriad of third-party applications and services, particularly those powered by artificial intelligence (AI).
With AWS at the helm, Amazon is steering towards adopting a comprehensive “full stack” strategy for AI. This entails the development of bespoke chips, software layers, model training, and user-friendly interfaces facilitating seamless interactions with diverse AI offerings.
Image source: Synergy Research Group.
In the previous fiscal year, AWS contributed a modest 16% to Amazon’s overall revenue but single-handedly fueled two-thirds of the company’s operating income.
Besides AWS, Amazon boasts flourishing segments such as advertising, subscriptions, and services for third-party sellers. Despite online sales being the cornerstone of its business, it currently demonstrates sluggish growth and the slimmest profit margins.
Given its diversified portfolio, Amazon has the agility to surge forward despite its mammoth $1.8 trillion market cap. Analysts predict a robust 44% surge in net income for the current year and a further 26% in 2025. Moreover, with a forward price-to-earnings (P/E) ratio of 42, investors can bask in Amazon’s AI-driven growth story without bearing an exorbitant premium.
Nike’s Journey Towards Renewed Glory
Nike has achieved the seemingly improbable in the consumer realm by establishing a firm foothold in the sports apparel and equipment sectors. Beyond owning a globally revered brand, its expertly managed global supply chain aids in cost reduction while nurturing a vast international following. Additionally, hefty investments in research and development have propelled Nike to innovate within its niche markets, coupled with substantial spending on advertising and robust social media presence.
A highlight of Nike’s marketing strategy involves roping in celebrity endorsements from renowned athletes across various sports. Noteworthy is its success in leveraging retired athletes, epitomized by the everlasting popularity of the Jordan brand more than two decades post Michael Jordan’s NBA retirement.
Despite recent setbacks amid an economic slowdown, Nike reported a modest 8% rise in net income, totaling over $3 billion in the first half of fiscal 2024 (concluded on Nov. 30, 2023).
Since hitting peak levels during the pandemic-induced surge in late 2021, Nike’s stock has grappled to regain momentum, currently trading at a 45% discount from its previous highs.
Nevertheless, the future seems promising as Nike gears up for a resurgence. With the imminent launch of revamped popular brands in spring and the highly anticipated Summer Olympics ahead, the company stands poised for a marketing coup.
Analysts foresee an 18% profit uptick by the next fiscal year, potentially alleviating the brunt of the forward P/E ratio of 28 and signaling a long-awaited resurgence for Nike’s stock.
Should Amazon be your next investment destination?
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John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Will Healy holds no position in any mentioned stocks. The Motley Fool holds and recommends Amazon, Nike, and S&P Global. Options recommended by The Motley Fool include long January 2025 $47.50 calls on Nike. The Motley Fool abides by a disclosure policy.
The insights and opinions presented herein are those of the author and do not necessarily align with those of Nasdaq, Inc.
