Better Buy in February 2024: Amazon Stock vs. Magna Stock

Magna appears to offer better value. Over the next three to five years, both stocks have the potential to deliver outsized total returns.

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Is Amazon (NASDAQ:AMZN) stock or Magna International (TSX:MG) a better buy this month? Remember that buying shares of common stocks is buying a piece of the underlying business. Let’s compare the two.

Amazon’s business

Amazon is primarily a leader in e-commerce with retail-related sales making up about 80% of its sales. It is also involved with cloud computing, online advertising, digital streaming, and artificial intelligence. One can imagine there are years of growth ahead for Amazon. It is profitable and a strong generator of cash flow. Amazon notes that it is guided by four principles — being customer centric rather than focusing on competitors, having the passion for invention, being committed to operational excellence, and possessing long-term thinking.

Amazon’s recent results

Last year, Amazon hit net sales of US$574.8 billion, with a 12% increase. It saw a 12% sales growth to US$352.8 billion for its North American segment, 11% growth to US$131.2 billion for its International segment sales, and 13% growth to US$90.8 billion for its Amazon Web Services’s cloud computing.

In 2023, its operating income rebounded to US$36.9 billion. Compared to the year before (2021), its operating income climbed 48% as well as witnessed a margin expansion to 6.4% from 5.3% in 2021. The operating cash flow may be a better gauge of the business as it maintained its elevation in 2022. Specifically, the operating cash flow jumped 82% year over year to US$84.9 billion.

Magna International’s business and recent results

Magna is an international auto parts supplier with core clients in North America, followed by Europe. It covers a wide range of products, including exteriors, interiors, seating, roof systems, body and chassis, powertrain, vision and electronic systems, closure systems, electric vehicle systems, tooling and engineering, and contract vehicle assembly.

Looking at the company’s past results, investors would easily notice that it is a cyclical business that could experience significant drops in earnings around recessions. For example, during the 2020 pandemic-affected year, Magna’s earnings fell about 35%, and the stock was cut in half from peak to trough.

Magna’s sales increased by 13% to US$42.8 billion, resulting in adjusted earnings per share growth of 29% to US$5.49 from a rebound of results versus 2022. Compared to 2021, the adjusted earnings per share rose 7%.

Investing takeaway

The 10-year chart below illustrates what a long-term investment in the stocks might look like. (The U.S. stocks are shown to maintain consistency.) Although both stocks experienced volatility, in the period, Amazon stock delivered total returns of approximately 25.9%, while Magna stock delivered 4.9%.

AMZN Total Return Level Chart

AMZN Total Return Level data by YCharts

That said, it looks like Magna stock trades at a better value, as it seems to not have moved an inch from the early 2022 levels. The longer this sideways action lasts, the higher the cyclical stock could trade should good news come out and it experiences strong earnings growth from an economic expansion, for example.

At the recent price of $74.84 per share, Magna stock trades at a price-to-earnings ratio of about 10 and offers a dividend yield of 3.4% after increasing the dividend by 3.3% this month, which marks its 15th consecutive year of dividend growth.

Over the next three to five years, both stocks have the potential to deliver outsized total returns. Looking at the history Magna stock, interested investors would be smart to be extra careful with their entry and exit points. For a long-term investment, it would probably be safer to park money in Amazon stock and add on dips.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Kay Ng has positions in Amazon. The Motley Fool recommends Amazon and Magna International. The Motley Fool has a disclosure policy.

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