People treat stocks differently than they do any other kind of purchase.
Nobody walks into a Best Buy and sees the 65-inch television they always wanted on sale at 50% off and questions the intrinsic value of the TV. When something we want to buy goes on sale, sure we might do a Google search to make sure there's not some underlying problem, but generally, we accept our good fortune.
That's not how most people view stock prices that have fallen. Even when it's clear nothing has changed in the strength of company, people look for reasons shares fall. In many cases, good companies see their prices fall due to broad market sentiment, not their actual business.
But, the stock market, actually works a lot like a retail store. Prices reflect demand and sentiment that may have nothing to do with the quality of the actual product. That TV you wanted might be on sale because the retailer misjudged demand, not because it has a bad picture or bursts into flames when your turn to the Weather Channel.
The current down market and short-term sentiment has dragged down some really good companies. That gives long-term buy-and-hold investors a chance to buy shares that are effectively on sale.
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Costco: A King of Consistency
Shares in many retailers have been dragged down due to rising costs, increasing gas prices, and the general specter of inflation. Costco (COST) is not impacted by pricing problems, because it's a membership-based business that offers low prices relative to traditional retailers. The company can raise prices as long as it's in line with increase from its competitors -- something the company monitors and said it will do.
With prices rising elsewhere, more people should join Costco and that's a long-term boost for the company which historically retains most of its members (about 90%). Higher prices don't hurt Costco and may actually help the chain, which has seen its stock price drop by 16.85% over the past six months.
Costco also pays a dividend and may even pay a special dividend at some point (which it has done multiple times in the past).
Microsoft: An Essential Set of Products
Microsoft (MSFT) has shed about 25% of its value in the past six months as it gets dragged down by general negative sentiment in the tech space. As an investor, however, you should ask yourself whether anything has changed for the company. Are customers going to stop spending on Office, Windows, Teams, and the cloud because retail prices have gone up?
Growth could slow if the overall economy cools, but Microsoft has seen its shares decline over its semi-cautious guidance (which basically all companies have issue). Its last quarter was actually fairly spectacular:
- Revenue was $51.7 billion and increased 20%
- Operating income was $22.2 billion and increased 24%
- Net income was $18.8 billion and increased 21%
- Diluted earnings per share was $2.48 and increased 22%
Microsoft sells products and services baked into how the world does business. It may not grow revenue by 20% every quarter, but it will continue to grow and be a viable long-term investment.
Walt Disney: It's All About the IP
Walt Disney (DIS) has more exposure to the impact of an economic downturn than the other two companies on this list. Travel to theme parks could take a hit if prices continue to rise and fuel prices make airfare more expensive. That being said, while its theme park business may see a slight downturn, the bottom is unlikely to fall out because, even in a down economy, there are still plenty of people with money to spend.
If the average American pulls back on travel, however, they likely will spend in other areas. That's good for Disney which can sell them movie tickets, Disney+ subscriptions, and all sort of entertainment from its huge archive of intellectual property.
People are going to watch Star Wars, Pixar, and Marvel content even if they can't afford to visit a theme park or take a Disney cruise. That makes the company's nearly 34% stock price drop over the past six months a huge buying opportunity.
