At this advanced stage of the stock market bull cycle, choosing the right candidate for your growth portfolio is not an easy task.
After a stellar run since the market crash in March last year, mega tech stocks appear to be taking a break as the global economy reopens and pandemic-driven demand surges show signs of peaking.
Below we take a look at Amazon.com (NASDAQ:) and Apple (NASDAQ: – two companies with market caps over $1 trillion – to understand which stocks are better positioned to outperform once the dust settles and the COVID –
Amazon's winning streak continues
After rising more than 70% last year, Amazon.com shares have paused this year at around 10%, Amazon shares are up just 3%, closing at $3,383.87 Monday.
Amazon Weekly Chart
But despite this lackluster performance this year, analysts are generally quite optimistic about the growth prospects of this e-commerce powerhouse, as they believe the company's sales momentum will continue through the reopening.
After record sales early this year, the Seattle-based company expects second-quarter revenue of between $110 billion and $116 billion, ahead of Wall Street's forecasts, and its cloud business continues to be a top performer.
Several Wall Street analysts have recently raised their price targets for Amazon, citing a favorable environment for its business units. JPMorgan, which has an overweight rating for the stock, raised its target price from $4,400 to $4,600.
According to the recent note:
"We believe Amazon is well positioned as the market leader in e-commerce and public cloud, where the secular shifts remain early – US e-commerce represents ~20% of adjusted retail sales, and we estimate ~15% of workloads today reside in the cloud."
The 31 analysts' average 12-month price target is $4,295, representing upside potential of 28% above the current stock price, according to data from TipRanks.
Apple's 5G strength
Like Amazon, Apple continues to show strong growth in all its product categories. It posted a 54% increase in sales for the latter and a 110% increase in its net income. Each line of products posted double-digit growth, with iPhone sales increasing 65% year-over-year, Mac sales increasing 70% and iPad sales increasing approximately 80%.
Despite the iPhone maker's stellar track record of rewarding long-term investors, some analysts warn Apple stocks may have a tough road ahead as the COVID-induced boom in buying the latest hardware cools.
Apple Weekly Chart
As employees return to their physical offices after the accelerated vaccination campaign in the developed world, the demand for work from home for Apple hardware, including iPads and Mac computers, may also decline. In addition, increasing chip shortages in the semiconductor industry could become a bigger problem for the company's future production volumes.
But if you're a long-term investor, these short-term headwinds provide an opportunity to accumulate Apple stock. After years of slow growth for its flagship iPhones, Apple is on the cusp of another super-growth cycle, powered by its newer 5G phone models.
The arrival of the iPhone 12 will drive record growth in sales, similar to the introduction of the first large-screen iPhone in 2014, as millions of existing users are likely to upgrade outdated handsets.
The latest iPhone has access to the next-generation cellular network called 5G, which promises faster internet speeds. In the last quarter, the new iPhone helped sales increase by 57% in China, which has a more developed 5G network.
However, Apple isn't just about iPhones. Apple's services division, which includes the App Store, iTunes, Apple Music and iCloud, is showing strong growth, helping to diversify the company's revenue base away from gadgets.
Last year, this division's revenue rose to $54 billion, more than double the amount it generated in 2016. If the pace of this growth continues, revenue from its services business could exceed $100 billion by 2024, according to Evercore ISI estimates.
For these reasons, most analysts consider Apple stock a good buy. The 27 analysts' average 12-month price target is $157.88, representing 22% upside potential above the current share price.
Starting point
Amazon and Apple are both among the most resilient tech giants best positioned to grow in the post-pandemic environment. Apple's growing services business and new 5G growth cycle will drive sales, while Amazon's dominance in e-commerce, combined with its cloud business, provides ample opportunity for increased sales.
In our view, these growth engines make both stocks attractive long-term purchases.
