2 beaten-down shares to consider buying for a stock market recovery
A resilient stock market recovery could be underway. Amid a temporary US tariff de-escalation, major indexes like the S&P 500 and FTSE 100 have shown strength in recent weeks.
Many factors could still derail the stock market’s comeback. Inflation is sticky, geopolitical tensions remain, and tariff truces look fragile. But investors who sit on the sidelines might be missing out on a great long-term buying opportunity if share prices continue rallying.
With that in mind, these two stocks are worth considering today after big share price falls.
Amazon
Starting with a ‘Magnificent Seven’ stock, Amazon (NASDAQ:AMZN) looks appealing right now. The Amazon share price has already recovered somewhat from its ‘Liberation Day’ lows, but it’s still down 16% from its February peak.
It may be the world’s fourth-largest company with a market cap over £1.6trn, but Amazon appears poised for further expansion. Its cloud computing unit’s a great example.
Amazon Web Services (AWS) is the firm’s fastest-growing division, and it already claims nearly a third of the cloud services market. Increasing adoption of artificial intelligence (AI) technologies is spurring demand.
The company’s fast becoming a market leader in AI. In-house chips are powering its new data centers, reducing Amazon’s reliance on Nvidia. This bodes well for AWS’ margins. Its Trainium2 chips cost around 40% less than Nvidia GPUs. Plus, the Trainium3, due to be launched later this year, promises a fourfold performance improvement and better energy efficiency.
Tariffs remain a challenge for the core e-commerce business. On the bright side, a 90-day tariff reprieve has been agreed between the US and China. However, both Beijing and Washington have already accused the other of violating the new deal. There’s still a lot of policy risk hanging over the company.
Amazon’s forward price-to-earnings (P/E) ratio over 31.1 leaves little room for error. That said, such metrics can’t be viewed in isolation. I think an expensive valuation can be justified based on the group’s growth potential. If the stock market rally continues, I wouldn’t be surprised to see Amazon shares leading the charge.
Melrose Industries
Turning to homegrown stock market opportunities, FTSE 100-listed Melrose Industries (LSE:MRO) is an aerospace and defence company that deserves a closer look. It’s a major supplier of airframe structures to Airbus and Boeing.
The Melrose share price has fallen 26% over the past year. Unchanged guidance in the firm’s FY24 results damaged market confidence. Furthermore, the company’s grappling with supply chain issues for aircraft components that could persist for two years or more.
Nonetheless, there are plenty of reasons for optimism, too. Last year, Melrose’s profit skyrocketed 42% to £540m and revenue shot up 11% to £3.5bn. Whatever concerns investors may have about the near-term forecast, there’s no denying these are excellent numbers.
Defence makes up around a third of Melrose’s business, with components for F-35 fighter jets being a key revenue source. As Prime Minister Starmer prepares the UK for “war-fighting readiness” and military budgets across the NATO alliance rise, there’s a supportive environment for the defence division to deliver further growth.
A long-term target of £5bn in revenue by 2029 also looks promising. Trading at a forward P/E below 14, I think Melrose Industries is a bright stock market opportunity to consider today.
The post 2 beaten-down shares to consider buying for a stock market recovery appeared first on The Motley Fool UK.
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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. Charlie Carman has positions in Amazon, Boeing, and Nvidia. The Motley Fool UK has recommended Amazon, Melrose Industries Plc, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
