While the infamous Santa Clause rally was absent in 2022, last week’s selloff was ironically an early Christmas gift for long-term investors.
Monetary tightening continues to concern investors causing stocks to drop throughout December. But in the eyes of some of the most famed investors, this may be a “sale” as investors can shop for quality stocks that begin to trade at a significant discount relative to their past.
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Warren Buffett’s mentor Benjamin Graham was a huge believer that investors shouldn’t panic during large downturns but instead look at bearish declines in the stock market as a sale similar to shopping for clothes, cars, or even a house. This contrarian thinking defies the fearful media headlines and is why Graham and his apprentice are widely considered the best investors of all time.
2008 Financial Crisis
Revisiting the movement of stocks after the financial crisis in 2008 sparked by an economic collapse in the housing industry illustrates how this year’s large decline could continue being a long-term buying opportunity.
We can see from the nearby chart that Benjamin Graham’s ideology of looking at large declines and volatility in the stock market as a sale or discount is still relevant. Despite the sharp drop on the 15-year chart during the financial crisis the S&P 500 is now up +166% and the Nasdaq +293% during this period.
This also feeds into Warren Buffett’s iconic notion that when others are fearful be greedy, that appears to be especially true among tech stocks looking at the Nasdaq’s post-financial crisis rebound.
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Stocks on “Sale”
Amazon AMZN: Historically, buying shares of Amazon has not been cheap, with the stock routinely trading over $2000 before its 20-for-1 split in June. Even better, AMZN’s current valuation appears to offer a historical discount outside of the stock price.
Trading around $83 per share, AMZN trades at 123.8X forward earnings. Amazon stock is well below its extreme decade high of 8,055X and 6% below the median of 135.5X. This is intriguing with Wall Street historically being ok with paying a premium for Amazon stock, and AMZN is still up +583% over the last decade to easily top the S&P 500 and Nasdaq.
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After last week’s selloff Amazon shares are now 33% below their post-stock split price of around $124 a share. AMZN currently lands a Zacks Rank #3 (Hold). The average Zacks Price Target suggests 71% upside from current levels indicating the stock may indeed be on sale from a long-term perspective.
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Apple AAPL: Shares of Apple are also begging to look like they are on sale after recently hitting their 52-week lows. Trading around $130 a share AAPL trades at a 21.3X forward earnings multiple. Apple stock trades 45% below its decade high of 38.6X and closer to the median of 15.6X.
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This is significant as Apple is a stock investors have historically wanted to own. Over the last decade, AAPL is up +614% to crush the broader indexes. Apple stock currently lands a Zacks Rank #3 (Hold) with the average Zacks Price Target suggesting 35% upside.
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Bottom Line
Apple (AAPL) and Amazon (AMZN) are just two examples of highly sought stocks that appear to be on “sale”. We all would have enjoyed a Santa Clause rally but with stocks like these now trading at a more significant discount relative to their past, last week’s selloff was an early Christmas gift.
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