Since no one knows what will happen at any given time in the stock market, investors are always looking for tips, guidance, and direction. What better place to find it than the portfolios of billionaire asset managers? It's a strategy that makes sense as long as you, of course, do your own due diligence as well. After all, your strategy and allocation will likely look different than Warren Buffett's.
Two stocks that are popular now among some asset managers and could provide inspiration for your own next great buy are Amazon(NASDAQ: AMZN) and PayPal Holdings (NASDAQ: PYPL). Here's why.
1. Amazon: A no-brainer growth buy
Buffett owns Amazon, and so do many other billionaire asset managers, such as Larry Fink of BlackRock and Ken Fisher of Fisher Asset Management. It fits so many different investing styles, which is why it's such a universal investment. It offers growth, but it's not very risky. It has loads of opportunities, but it's backed up by its incredible brand and assets.
E-commerce is still a standout. Amazon accounts for more than a third of all e-commerce in the U.S., and its business increased 9% in the U.S. in the second quarter, with 10% growth internationally. CEO Andy Jassy noted that while there's strong loyalty from Prime members, shoppers are still trading down to cheaper products because of inflation, which impacts total sales growth. When that lifts, these numbers, which are impressive as is, could accelerate.
The big excitement now is over generative artificial intelligence (AI), and Amazon has an edge as the leader in cloud computing services, with more than 30% of the market. Clients of its Amazon Web Services (AWS) are looking for flexibility, and Amazon offers a wide array of services targeting businesses that have in-house developers as well as smaller clients that need easy-to-use solutions.
Amazon emphasizes that only a small percentage of information technology (IT) spending is currently on the cloud, but there's going to be a big flip, and that's starting to happen. Amazon is poised to benefit, saying that the generative AI business already has a "multibillion-dollar revenue run rate."
There's also advertising, streaming, and more, and on top of all that, Amazon stock is trading at close to its lowest valuation in years at the current price. That makes it a growth buy that will also work for value investors.
2. PayPal: A no-brainer value buy
PayPal Holdings has been a huge disappointment for investors over the past few years. It squandered its lead in digital payments, allowing new service providers to steal market share, and its stock has plunged 74% over the past three years.
But it recently got a new CEO, and there's been a lot of progress. PayPal comes along with an incredible brand, important relationships with millions of merchants and customers, and massive opportunities. That's why it looks more like a bargain than a value trap and appeals to billionaires.
Revenue increased 9% in the second quarter on a currency neutral basis, beating guidance of 7%. Meanwhile, its operating margin expanded 1.3 percentage points to 16.8%. Profitability and cash flow have been a problem for PayPal recently, and it demonstrated strength on both accounts in the second quarter, with earnings per share (EPS) up 17% year over year and adjusted free cash flow of $1.1 billion.
New CEO Alex Chriss has been doing what needs to be done; sharpening the company's focus and focusing on innovation. Some of the billionaire hedge fund managers who have PayPal stock in their portfolios include Ken Griffin of Citadel Advisors, John Overdeck and David Siegel of Two Sigma Investments, and Israel Englander of Millenium Management.
At the current price, PayPal stock trades at 17 times trailing-12-month earnings, which looks like a bargain considering its brand and opportunities. If you already took a chance on PayPal when it was even lower, like some of the billionaires who own it, you would have already seen your investment appreciate -- it's up 21% since the second-quarter earnings release. But it's not too late to buy; PayPal looks like a no-brainer value buy right now.
Should you invest $1,000 in Amazon right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and PayPal. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
