Another year is already drawing to a close. The major market indexes hit new all-time highs in 2024, and some market followers are struggling to find investment ideas in this sea of premium valuations. But there are still reasonably priced stocks that can boost your portfolio in 2025 and beyond.
To assist you with your search, three Motley Fool contributors are here to provide you with timely investment ideas for the final weeks of 2024. Here's why they like Amazon (AMZN -1.45%), Williams-Sonoma (WSM -0.84%), and Ulta Beauty (ULTA -0.91%).
Amazon is using AI to its advantage
John Ballard (Amazon): Amazon has been the most disruptive single force in the retail industry over the last 20 years. And the emerging opportunities in artificial intelligence (AI) are playing to Amazon's strengths as a technology-oriented company.
Amazon has been investing heavily in AI for its cloud computing business, which has experienced accelerating growth over the last year and remains a strong catalyst for the stock, since Amazon Web Services generate most of the company's operating profit. But AI has also been running quietly behind the scenes for years to power recommendations for shoppers of its online retail store. Amazon knows how to engage and retain customers, and its latest innovation shows how it will continue to find ways to drive more sales.
Amazon recently launched the Rufus AI-powered shopping assistant in time for the busy holiday season. It also just reported another record-breaking Black Friday week. With new tools like Rufus, AI Shopping Guides, and Amazon Lens, which can help customers identify a product with a photo or screenshot, Amazon continues to innovate in ways that will keep it in the driver's seat of a growing $4 trillion global e-commerce opportunity.
The company's revenue has doubled over the last five years to $620 billion, and it grew 11% year over year in Q3. This is solid growth in the context of macroeconomic uncertainty that's hurting retail spending right now. The combination of AI tools and further expansion of same-day delivery positions Amazon to continue enjoying solid growth over the long term. Throw in other opportunities in advertising and cloud services, which are growing at an approximately 20% pace right now, and investors should expect the stock to extend its winning track record.
This stock is beating the housing slowdown
Jeremy Bowman (Williams-Sonoma): If you're looking to deck the halls of your portfolio, there are few companies better positioned to help you do that than Williams-Sonoma. The home furnishings empire, which also owns West Elm and Pottery Barn, is synonymous with tasteful home decor, furniture, and kitchenware.
While much of the home furnishings and housing industry has struggled due to the slump in the housing market, Williams-Sonoma is still thriving in this difficult environment. The stock is up 87% year to date, driven by strong margin improvement, operational execution, and market share gains.
In its third-quarter earnings report, comparable brand revenue fell 2.9%, a reflection of broader industry headwinds, but its profiitability jumped in the quarter as gross margin rose 230 basis points to 46.7%, driven by higher merchandise margins and supply chain efficiencies. That lifted operating margin by 80 basis points to 17.8%, which led to adjusted earnings per share rising from $1.83 to $1.96.
That's impressive in the current market environment, and it's not an accident. The company has focused on controlling inventory and exciting customers with fresh offerings in its product line, which has helped it avoid markdowns. Management argued its full-price strategy helps build trust with customers as they don't need to feel like they should wait for a sale. It's also found growth in its B2B and trade business serving design professionals, giving it another growth opportunity.
Last month, management announced a $1 billion addition to its share buyback program, and it has steadily returned capital to shareholders through repurchases. Looking ahead, management sees more room to expand its operating margin, and sales should rebound once the housing market turns. That's a great reason to expect the stock to continue to move higher and to buy it now.
This industry leader has huge long-term tailwinds
Jennifer Saibil (Ulta): Ulta shareholders were likely disappointed when they learned that Warren Buffett and Berkshire Hathaway had sold the bulk of their holdings of the retailer in the third quarter, just months after establishing the position. But investors should keep in mind that billionaire money managers have different goals and priorities than individual investors.
Ulta is still a well-established leader in cosmetics and skincare retail with more than 1,400 stores, as well as a store-within-store presence at 500 Target locations. It's still opening new stores at a steady pace, and its differentiated model offers 600 brands that run from cheap, mass-market names to luxury labels.
Ulta targets the beauty enthusiast, who likes to choose from all kinds of brands, and it's the originator and premier company with this setup. It also offers services to give customers a one-stop-shop experience, which invites them to spend more with the company.
The beauty industry is expected to expand at a compound annual growth rate in the low-to-mid single digits over the next few years. However, there are some higher-growth categories where Ulta shines. Today, consumers are pivoting away from the traditional pharmacy makeup channels and department stores to purchase through specialty shops and e-commerce. That's Ulta's space.
It has developed a top loyalty program too, with 44 million members and growing, and members account for 95% of sales. The company estimates there are 140 million beauty enthusiasts, and that number has doubled over the past three years. As the market expands, Ulta is well positioned to benefit from organic growth and to capture market share.
Although it's facing headwinds right now as shoppers scale back on discretionary purchases, it's well positioned to benefit from organic growth and to capture market share when industry conditions improves.
