Nasdaq Bear Market: 3 Stocks Split Into Stocks To Buy Even As The Market Plunges

Stock splits have been all the rage in recent years, fueled by rising share prices of some of the world’s most recognizable companies. In recent months, however, some of those same stocks have suffered spectacular declines as S&P 500 and the Nasdaq Composite both have fallen headlong into a correction. Worse yet, the tech-heavy Nasdaq has slipped into bear market territory, down about 27% from its peak reached late last year.

While many companies have decided to split their shares, they are not all the same. Some have been relegated to the bargain bin, while others belong in the trash bin.

With that as a backdrop, we asked three Motley Fool contributors to identify a stock split that they’re most excited about, given the recent market correction and the growth potential of the respective companies. Read on to find out why they chose Amazon (AMZN 3.66%), Alphabet (GOOGLE 4.20%) (GOOG 4.16%)Y Shopify (STORE 5.04%) among the recent candidates for the stock split.

Image source: Getty Images.

Amazon: A Trifecta of Best-in-Class Companies

Danny Vena (Amazon): There’s no denying that Amazon’s e-commerce business is the driving force behind the company’s instant name recognition, and for good reason. While estimates vary, the company is expected to account for up to 40% of US online retail sales by 2022, according to eMarketer. In addition, the company is a world leader in electronic commerce, controlling almost 8% of the market.

Despite that stranglehold, online retail is just the beginning of Amazon’s huge and growing opportunity. The company popularized cloud computing for the masses and remains a strong leader with approximately 33% of the global market share. In the first quarter, revenue from Amazon Web Services (AWS), the company’s cloud computing segment, grew 37% year over year, helping to maintain its dominant position.

Completing its trifecta of world-class businesses is digital advertising. Electronic real estate on Amazon’s e-commerce platform has provided the foundation for the company’s fast-growing digital ad business. In 2021, the segment generated more than $31 billion in revenue, ranking third in the global digital advertising market, behind Google and Metaplatforms (FULL BOARD 1.83%).

Beyond the “big three” businesses, there are still other areas that could drive Amazon’s growth in the future. Amazon Prime, its customer loyalty program, has roughly 200 million paying members, and Prime Video is frequently cited among the top streaming video services. While voice-controlled smart speakers like the Echo and its Alexa digital assistant are nothing more than a novelty these days, other use cases could be just around the corner.

There is more. While it hasn’t quite reached escape velocity yet, Amazon’s Just Walk Out technology is gaining steam. The artificial intelligence (AI) platform uses sophisticated cameras, sensors and algorithms to track shoppers’ purchases as they move through the grocery store, allowing them to “just walk out,” generating a digital record tape and debiting their account, without never having to wait in line for a cashier. Amazon has implemented this technology in 42 of its stores around the world and is licensing the technology to other grocery stores. Sainsbury’s, the UK’s second largest supermarket chain, has modernized its Holborn Circus location with technology from Amazon, which could be the first of many.

These businesses and others delivered strong results for Amazon last year, with net sales rising 22% to $470 billion, while net income rose 57% to $33.4 billion.

It’s worth noting that since the company announced its 20-for-1 stock split earlier this year, Amazon shares have fallen on tough times as fears of slowing e-commerce adoption and a bear market have heavy on tech stocks. History suggests that these factors should be short-lived, giving savvy investors the opportunity to buy shares of this world-class stock division cheaply.

A young man sitting on a sofa looking at a smartphone.

Image source: Getty Images.

Alphabet: the company that dominated the ABC of innovation and cash flow

will cure (Alphabet): Alphabet revealed its intention to split its shares when it released its 2021 earnings in early April. Google’s parent plans a 20-for-1 stock split that will take effect at market close on July 15. At a price of about $2,120 per share at the time of this writing, this would bring the post-split share price to about $106 per share.

But what got the stock price so high that it needed to be broken up were years of massive growth. His dominance drove users to his YouTube search engine and video platform and produced a huge, fast-growing advertising business. As a result, it earned about 80% of its revenue from ads in the first quarter of 2022.

Still, since competition from Meta and Amazon will likely slow that growth over time, it innovated in many other areas. This creative effort has led Alphabet into numerous businesses. The life sciences company Verily, the driving technology company Waymo and the artificial intelligence researcher DeepMind are among its holdings. And even if it can’t monetize all of these businesses, shareholders may benefit from future spinoffs.

However, judging from its quarterly reports, one company that continues to successfully monetize is its cloud infrastructure business, Google Cloud. Despite the delay of Amazon’s AWS and MicrosoftAzure, Google Cloud grew first-quarter revenue 43% year over year to $5.8 billion. That outpaced the performance of the company, which saw revenue growth of 23% to $68 billion for the first quarter.

Cloud market, measured by % market share.

Image source: Synergy Research Group.

Still, investors pummeled stocks as quarterly net income fell 8% over the period to $16.4 billion, a decline fueled by losses in equities. Alphabet shares have lost about 10% of their value year over year and are down 30% from their 52-week high.

Still, that brings its price-to-earnings (P/E) ratio to around 19, valuing Alphabet well below Microsoft at 27 times earnings and cloud peer Amazon at a P/E of 52. .

Additionally, the company generated $15.3 billion in free cash flow during the quarter, which helped bring its liquidity to around $140 billion. Such a buildup of cash gives Alphabet one of the strongest balance sheets in the industry. It should also help enrich investors in the long run, as you split your stock and monetize more of your innovations.

Two people entering credit card information on a smartphone screen.

Image source: Getty Images.

Shopify: Aligning with your customers to grow

Brian Whiters (Shopify): The market flocked to e-commerce stocks as the coronavirus spread across the globe. But now, as the coronavirus is drawing to a close, the market has fled these same stocks and left them for dead. Shopify, the platform that powers e-commerce sites for businesses and entrepreneurs, has not escaped this liquidation. With the stock approaching the levels of three years ago and its upcoming 10-for-1 stock split, it’s worth taking another look at this behind-the-scenes trader.

In the last three years, Shopify’s top line has almost tripled. That is absolutely mind-boggling, but there is another interesting trend that is even more revealing for the future. Shopify reports its revenue in two segments: subscription solutions and business solutions. The subscription segment represents revenue collected from monthly subscription plans to access the platform. Like any subscription business, the company collects money from its customers, whether or not they use the platform.

The business solutions segment, on the other hand, is driven by customer usage. As Shopify merchants make sales on the platform, collect payments, use fulfillment services, or use Shopify shipping. The costs of these transaction-based services are shown in the business solutions segment. So when merchants succeed on the platform with the most sales, Shopify benefits along with their customers.

Metrics

2019

2020

2021

Income

$1,578 million

$2,929 million

$4,612 million

year-over-year change

47%

86%

57%

Business Solutions Revenue

$936 million

$2,021 million

$3.27 billion

year-over-year change

54%

116%

62%

Business solutions % of total

59%

69%

71%

Source: company earnings releases. Author’s calculations. YOY = year over year.

You’ll notice from the table above that the business solutions segment is growing faster than the overall business and becoming a larger portion of the total. This is a very positive sign for Shopify, its merchants, and investors. This means that Shopify’s customers, the merchants who sell products on the platform, are growing faster than Shopify’s core subscription business. This bodes well for the long term.

Let’s take a look at another aspect of the Shopify platform: its buyer metrics. You can see from the table below that customers who use the Shopify platform to buy products online spend more each year. This conveys that consumers love to spend at Shopify merchants’ online stores.

Metrics

2019

2020

2021

Gross value of the merchandise

$61.1 billion

$119.6 billion

$175.4 billion

buyers

300 million

457 million

597 million

GMV per buyer

$204

$262

$294

Source: Company presentation. Author’s calculations.

Even as eCommerce growth slows, Shopify and its merchants have found a winning formula that is attracting customers. Even better, those customers spend more over time. As a shareholder, I love that the majority of Shopify’s revenue is aligned with the success of their customers. You might also consider adding stocks to your portfolio. Whether you buy a few shares before the June 22 stock split or after, chances are five years from now, you’ll be very happy to own this gem of e-commerce.

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