This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

To put it plainly, the coronavirus pandemic boosted most of Amazon's (NASDAQ: AMZN) operations. Social distancing orders placed added value on the services it provided and to the company's credit it capitalized on the situation quite effectively.

The pandemic will not be permanent, and life will at some point slowly return to a more normal reality. Where will Amazon's business be when this happens? Here we will explore Amazon's prospects one year from today.

Thriving financially

Amazon fully took advantage of the environment we found ourselves in last year -- and it shows in the company's financial success. In its most recent quarter (ended Dec. 31, 2020) the company eclipsed $100 billion in sales for the first time, with revenue coming in at $125.6 billion -- up 44% year over year on a truly massive base.

Its trailing-12-month operating cash flow soared 72% year over year to $66.1 billion with free cash flow over the same period rising 20.1% despite heavy investments in logistics and a historic hiring spree.

The outperformance does make some sense considering the year our world has just endured. Government mandates forced many brick-and-mortar retail rivals to temporarily close or restrict capacity, which boosted Amazon's gigantic e-commerce presence by limiting consumer selection.

Furthermore, the pandemic accelerated society's digital transformation. Considering this, one could have expected its Amazon Web Services (AWS) segment to enjoy strong demand just like its commerce business did. After all, Microsoft's Azure -- its closest competitor -- realized a slight ramping in growth quarter over quarter during the same period. It posted 48% growth for Azure versus the prior-year's period.

However, AWS did not realize a demand boost. Its year-over-year growth of 29% was the same as the previous quarter despite favorable macro tailwinds; this potentially points to the segment continuing to mature and reach its potential. With AWS boasting far better profit margins than its e-commerce business, this is concerning and there is little guarantee it will be able to turn around.

The ebbing of COVID-19

While we don't know exactly when the pandemic will finally come to end, help is certainly arriving. Over the last several weeks, millions of Americans have received their COVID-19 vaccines, and cases continue to precipitously drop in correlation with this trend. To help supply chains even more, Johnson & Johnson just submitted an Emergency Use Authorization application for its COVID-19 inoculation.

What would this all mean for Amazon?

The return of brick-and-mortar competition should allow stores to more effectively compete with Amazon. This is not to say Amazon's growth will halt here -- far from it. The company has been delivering expansion and shareholder returns for decades and that will not likely change as e-commerce as a whole continues to quickly grow. Still, it does likely mean growth will revert to pre-pandemic levels.

From an AWS perspective, fading social distancing orders could theoretically lead to the return of in-person meeting and collaboration which could be a small headwind there. With AWS' growth already slowing during the heat of the pandemic, a return to normalcy would be great for the world as a whole but perhaps not as great for Amazon. The company's somewhat lofty price to earnings (P/E) ratio of 80.2 makes slowing growth in its two primary areas of business troubling.

Proceed with caution 

For years (decades really) Amazon has reliably delivered for investors. While its 2020 was undeniably admirable, a return to normalcy would remove some of the need for Amazon's products. Investors certainly will not be burned by owning this iconic behemoth, but I do think there are better places to invest your funds.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Amazon (NASDAQ:AMZN) be in a year? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

When considering iconic global brands to invest in, Nike (NYSE: NKE) and lululemon athletica (NASDAQ: LULU) are certainly two of the first that come to mind. The organizations generated bountiful success for shareholders over the years and are well set up to continue doing so.

Which is the better investment? Upon examination, it is abundantly clear that both are fantastic options. Here's why:

Nike's promising transition

In Nike's most recent quarter, sales grew by 9% with earnings growing 11% -- both year over year. On the surface, this growth seems somewhat modest. When considering many of Nike's wholesale partners (department stores) are operating under capacity restrictions or closed altogether, this growth becomes much more impressive.

Nike's digital sales grew by 84% year over year, powered by triple-digit growth in North America. This outsized expansion more than offset the pain Nike experienced from restrictions on wholesalers and its own brick-and-mortar stores.

What does this successful pivot to digital mean?

In a normalized business environment, the company earns a roughly 10% higher gross margin on digital sales versus sales transacted via wholesale. If any of this shift has staying power, it should therefore result in meaningful profit gains as the world slowly goes back to normal.

While there is no guarantee this will be the case, the company is confident it can maintain its digital momentum. While Nike today earns roughly 30% of its total revenues through digital channels, CEO John Donahoe expects that number to approach 50% in the coming years. If this forecast turns out to be accurate, it should be a very positive trend for investors.

Donahoe has executive experience with three successful technology companies (ServiceNow, eBay, and PayPal Holdings), offering investors good reasons to think he can continue executing a digital transformation at the helm of Nike.

Lululemon is thriving

Lululemon is more expensive than Nike on a price-to-earnings basis, and for good reason. In its most recent quarter, the company grew sales by 22% and profit by nearly 15%; this was despite similar pandemic-related retail restrictions that hurt Nike's operations. CFO Meghan Frank directly attributed company growth to increased traffic in Lululemon's digital operations.

LULU PE Ratio (Forward) data by YCharts

For context, the clothing company's direct sales (which include digital sales) now make up 42.8% of total revenues vs. 26.9% just last year. Clearly, Lululemon's focus has shifted rapidly due to COVID-19, and it's paying off.

While some companies are struggling to stay afloat and maintain shareholder returns amid COVID-19, Lululemon managed to initiate a share buyback program of up to $500 million. This does represent roughly 1% of the current market cap, but is a great sign regardless.

Beyond finding success in e-commerce, Lululemon officially expanded into in-home fitness with its acquisition of MIRROR for $500 million. MIRROR offers group and one-on-one floor workouts from the home and plans to broaden its offerings into things like meditation with Lulu's resources.

Lululemon prides itself on offering its fans compelling omni-channel experiences. This purchase allows it to broaden those offerings by adding connected fitness to the mix. With direct competitors like Peloton Interactive trading at 460 times forward earnings (nearly five times more expensive than Lululemon), any success realized with MIRROR offers Lululemon and its shareholders another promising leg of potential returns.

Both are great options

While investing is sometimes a process of choosing one comparable company over another, I do not think you need to do so in this case. Both Nike and Lululemon are performing exceptionally well and are poised to continue doing so for years to come.

Investors can feel confident going with either company -- neither will be going out of style anytime soon.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Better Buy: Nike vs. Lululemon appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Bradley Freeman has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Nike, PayPal Holdings, Peloton Interactive, and ServiceNow, Inc. The Motley Fool Australia has recommended Nike. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Last month, Tesla (NASDAQ: TSLA) and Apple (NASDAQ: AAPL) carried out 5-for-1 and 4-for-1 splits respectively. Leading into the splits, both stocks furiously rallied to new highs on the news.

With investors treating both split decisions so bullishly, it's important to highlight the splits' influence on market fluctuations in the past, and if this is truly an investable event. Let's take a closer look.

What is a stock split?

Stock splits occur when a company decides to expand its existing share count by a certain number. Every shareholder receives additional shares for each share they previously held. For example, Tesla's 5-for-1 split resulted in shareholders receiving 5 shares for every 1 share previously held.

The new price per share is determined by dividing the previous share price by the factor by which the share float grew. This event has zero impact on a company's valuation or future prospects. Instead of 1 share at $2000, you have 5 shares at $400.

Some historical context

Stock split popularity coincided with two noticeably troubling stock market crashes. The concept of a split was invented in 1927 where it was liberally used until the Great Depression ravaged markets in 1929.

Splits can make it easier for inexperienced investors to try their hand in investing, thinking they are getting compelling deals. Some investors in 1929, however, didn't have access to investing resources and didn't fully grasp the lack of effect a stock split has on value. The pain was quite real for some in the years that followed with stock market averages dropping by 80% by 1932.

What about the Dot-com bubble? Since 1980, markets have averaged 44 stock splits per year. From 1998-2000 -- the peak of the Dot-com bubble -- that number more than doubled to 91 average annual splits.

That noticeable bump again coincided with the market peaking and later experiencing a painful crash. Just like in 1929, stock splits were taken -- by some -- as an event making stocks more affordable and valuable to shareholders. That is simply not the case. For hot Dot-com stocks like Qualcomm it took until last year to reclaim its all-time highs of $89.66 -- nearly 2 decades after the technology bubble popped.

Splits today

This year, Apple's and Tesla's share prices rocketed higher in the weeks leading up to the announced splits. For example, in the 2 weeks prior to the event Tesla's equity value jumped 81% with no other news. The chart below clearly depicts the notable outperformance Tesla has enjoyed over the S&P 500 since the announcement was made August 11th. It has since given back over half of that equity bump, but the stock is still far outperforming the S&P 500, as shown below. Apple's price action has been slightly less volatile but similar. While the wildly swinging charts of Apple and Tesla do look eerily similar to split stocks in 1929 and 2000, there is reason to believe this time is different. Why?

Image source: YCharts

Today, cautionary resources on the irrelevant nature of a stock split are more readily accessible. Furthermore, the advent of fractional shares removed some of the demand for cheaper shares. Now investors can buy a small piece of an Apple share, rather than having to shell out well over $100 to do so. This essentially removes any unique benefit from splitting a stock. Fractional shares foster the same affordability for investors starting out that splits do, without all of the drama.

Another interesting difference between this period of high-profile stock splits vs. prior periods? A 2020 federal funds rate that is below 1% versus over 5% in 1929 and 2000. Today's historically low interest rates provide weaker direct competition to equity.

With a Federal Reserve explicitly telling you it's committed to higher inflation in recent meetings, that rate should continue to stay low and be a boon to equity valuations (raising rates is deflationary). While Apple and Tesla may be enjoying share returns due to a less-than-meaningful stock split, the returns could stick around amid monetary policy that is far more favorable than in 1929 or 2000.

So what? 

While I would totally avoid chasing parabolic stock price rises in response to stock splits, I do not believe this round of splits is depicting a market peak like it has in the past. Readily accessible resources on how little stock splits actually matter, fractional shares, and a Fed fixated on boosting inflation all provide a more comfortable setup for stock markets to continue pushing higher. Still, investors would be well-served tune out the noise associated with splits altogether.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Did Apple and Tesla stock splits signal the stock market top? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Bradley Freeman owns shares of Qualcomm. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Tesla. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Thinking back to the last financial crisis, Warren Buffett played a big role in calming chaotic markets. While sensationalist analysts were calling for the end of public equities as we know them, Buffett's company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) was taking his own advice by exercising greed while others chose fear. 

Buffett is not a stock trader. Instead, rigorous quantitative analysis, an artistic touch, and extensive management evaluation are all time-consuming prerequisites for Berkshire Hathaway deciding on an investment. To put it plainly, Berkshire Hathaway covets a time horizon longer than most.

In 2009, Berkshire Hathaway used the financial crisis as a chance to initiate large investments in American banks, the sector at the root of all economic pain. While Buffett called a stock market bottom nearly a full year too early, it did not matter. The call showed confidence and inspired tranquility in financial markets desperately trying to find their footing. In the previous crisis, he stuck to his guns as an investor, and inspired anxious investors to do the same. He did not subscribe to frightening current events; instead, he tuned out the noise.

Buffett's coronavirus strategy

The coronavirus pandemic offers us our next case study of Buffett functioning in a global crisis. The current pandemic is similar to the financial crisis in that both are overwhelmingly frightening, and temporary. Neither catastrophe enjoys a definitive end date, but an end date is inevitable, nonetheless.

Berkshire Hathaway bought aggressively in 2009 after the market's historic crash, but not during this tumble. So far, Buffett has sold, at a sizeable loss, stakes in Delta Airlines (NYSE: DAL) and Southwest Airlines (NYSE: LUV) just weeks after adding to them. The dichotomy of reactions when comparing the 2008 crisis to this one is notable to say the least.

Warren Buffett's behavioural change is not a matter of financial health. Berkshire Hathaway has the liquidity to make mammoth investments. Its balance sheet boasts zero long term debt and features a $124 billion cash and equivalents position, compared to just $59 billion in 2009. The result is a publicly traded company with a massive amount of funds available for investment, not one strapped for funds.

So what happened?

Dissecting recent moves

Since we know Berkshire's financial health isn't in question, it is important to note that Buffett sold just enough stock in each of the two airlines to reduce the stake below 10% of the float. Under SEC regulations, any stockholder owning over 10% of a public equity is considered an affiliate. Affiliate status subjects an investor to Second-Step Acquisition (SSA) oversight by the Federal Government. Importantly, this affiliate status induces regulatory oversight for any subsequent affiliate acquisition of the same company, or of a related company. This means if Berkshire Hathaway wanted to make a large purchase in the aviation industry, affiliation status with Delta or Southwest would have jeopardised the process. 

By avoiding affiliation status, Buffett gains more flexibility to make a big splash elsewhere. But the company's continued silence raises questions. I believed the sales were setting them up for something big, but it has been weeks since the abrupt airline trades, and markets have strongly recovered from wash-out lows.

The inaction in Nebraska could be a less favourable outlook on this crisis than the past one, but I don't see it that way. Instead, I think the Warren Buffett playbook is being complicated by historic federal intervention. The federal government has shelled out record levels of liquidity over the last few weeks, via fiscal and monetary easing, trillions of dollars in liquidity has been granted to corporations and individuals to try and ease the pain of the Coronavirus. Airlines are receiving payments to keep employees on payroll, and the federal reserve continues to expand their lending programs to include more companies.

Most of the hard hit industries are being supported by Washington D.C, meaning Warren Buffett must compete with federal disaster loans carrying low to zero interest coupons. That is steep competition, compared to the favourable terms Buffett and his firm locked in during the financial crisis. To compare, Berkshire was paid 6% by Bank of America preferred shares to take a stake more than a decade ago. This time around, If Berkshire Hathaway opted to compete with the more involved federal government, the real return would have been inferior. It is possible that Buffett wants to wait for the dust to settle to identify industries not already aided by the government.

Interesting weeks ahead

Each morning, I open my computer, half expecting to see a headline about Berkshire Hathaway buying a struggling blue-chip company. S&P multiples have been trimmed dramatically from February highs, iconic brands have seen their stocks crumble, but I still see it as a possibility. Perhaps federal intervention prevents Buffett from getting the terms he wants, or maybe his view on the American economy has finally soured, but I don't think so. I think there are things in the works and he is biding his time. Regardless, following the activities of the Oracle of Omaha is always a fascinating practice.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How will Buffett steer through the airline crisis? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Bradley Freeman has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares), Delta Air Lines, and Southwest Airlines and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). shares), The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.