We’ve all heard this stock-market cliché: “What goes up must go down.”
But what goes down may only go down a small amount — or for only a short period — before the resumption of an upward climb.
Amazon.com AMZN, +0.47% provides a wonderful example, as its shares have dropped 10% from their peak closing level on July 26 through the close on Aug. 25. Check out this 10-year stock chart:
That’s a beautiful chart, but there have been some painful periods, especially if you keep in mind that memories are short and the financial media can never get enough of panicky headlines. From the close on Dec. 29, 2015 through the close on Feb. 9, 2016, Amazon shares plunged 34%. If you were a patient, long-term holder of the shares, it was just a blip, albeit a massive one.
During that same period, energy was the weakest S&P 500 SPX, +0.02% sector, down 4.2%, as the price of West Texas crude oil CLV7, -3.30% declined 1.8%. The consumer discretionary sector was down 3.1%, as investors digested another quarter’s worth of earnings reports.
If you believe the doomsayers after eight years of a bull market, the following list won’t help you. But if you are more optimistic — after all, the market is still propped up by amazingly low interest rates, while the economy continues to grow and the U.S. labor market tightens as more jobs are created — it could pay to look at what other well-regarded stocks have matched Amazon on the recent ride down.
During that period from July 26 through Aug. 25, eight stocks in the S&P 500 consumer discretionary sector (including Amazon) that have majority “buy” ratings among analysts polled by FactSet slumped 10% or more. Here they are, sorted by the size of their decline:
|Company||Ticker||Total return – July 26 – Aug. 25||Share ‘buy’ ratings||Share neutral ratings||Share ‘sell’ ratings|
|Goodyear Tire & Rubber Co.||GT, +0.42%||-16%||75%||25%||0%|
|Ulta Beauty Inc.||ULTA, -1.62%||-14%||56%||44%||0%|
|Coach Inc.||COH, +0.00%||-13%||68%||29%||3%|
|Netflix Inc.||NFLX, +1.13%||-12%||64%||29%||7%|
|Priceline Group Inc.||PCLN, +0.22%||-12%||77%||23%||0%|
|Whirlpool Corp.||WHR, -0.11%||-11%||55%||45%||0%|
|Advance Auto Parts Inc.||AAP, -0.77%||-10%||54%||39%||7%|
|Amazon.com Inc.||AMZN, +0.47%||-10%||86%||12%||2%|
You can click on the tickers for additional information, including coverage of earnings results and other news, as well as charts and filings.
Here’s how the analysts expect the shares to perform over the next year:
|Company||Ticker||Closing price – Aug. 25||Consensus price target||Implied 12-month upside potential|
|Goodyear Tire & Rubber Co.||GT, +0.42%||$30.07||$37.20||24%|
|Ulta Beauty Inc.||ULTA, -1.62%||$212.36||$271.85||28%|
|Coach Inc.||COH, +0.00%||$41.88||$49.28||18%|
|Netflix Inc.||NFLX, +1.13%||$165.95||$185.40||12%|
|Priceline Group Inc.||PCLN, +0.22%||$1,793.48||$2,113.33||18%|
|Whirlpool Corp.||WHR, -0.11%||$168.45||$200.63||19%|
|Advance Auto Parts Inc.||AAP, -0.77%||$95.80||$104.24||9%|
|Amazon.com Inc.||AMZN, +0.47%||$945.26||$1,150.46||22%|
One reason for the drop in Amazon’s stock price was that its second-quarter earnings declined sharply. Then again, Jeff Bezos, its founder and CEO, has always emphasized growing sales, market share and entering new businesses over short-term profitability. It hasn’t been uncommon for the company to announce major business investments that have hurt its earnings for long periods.
Here’s another set of numbers to provide some food for thought: how much each company’s sales per share has increased or decreased over the past 12 months:
|Company||Ticker||Sales per share – past 12 months||Sales per share – year-earlier 12-month period||Change in sales per share|
|Goodyear Tire & Rubber Co.||GT, +0.42%||$57.59||$58.47||-2%|
|Ulta Beauty Inc.||ULTA, -1.62%||$85.00||$67.99||25%|
|Coach Inc.||COH, +0.00%||$15.87||$16.08||-1%|
|Netflix Inc.||NFLX, +1.13%||$23.01||$17.41||32%|
|Priceline Group Inc.||PCLN, +0.22%||$229.59||$194.28||18%|
|Whirlpool Corp.||WHR, -0.11%||$276.81||$263.20||5%|
|Advance Auto Parts Inc.||AAP, -0.77%||$128.21||$129.56||-1%|
|Amazon.com Inc.||AMZN, +0.47%||$307.48||$250.87||23%|
We looked at sales per share, rather than raw revenue numbers, because the per-share figures incorporate any dilution from the issuance of new shares or declines in share counts from stock buybacks.
So half of these companies have achieved double-digit increases in sales per share over the past year. Those are encouraging figures to back analysts “buy” recommendations.
As usual, if you see any stocks that are tempting for long-term investments, your next step needs to be your own research so you can decide for yourself how likely each company is to continue growing its business at a strong pace over the next decade.