Holiday cheer typically sends the stock market higher in the fourth quarter.
The S&P 500 (SNPINDEX: ^GSPC) has traded sideways since the third quarter, which ended on Sept. 30, but the fourth quarter has historically been its strongest. Since 1980, the S&P 500 has gained an average of 4.8% during the final three months of the year, topping its return in the next closest quarter by 1.9 percentage points, according to Argus.
Investors should never target short-term gains, but there’s nothing wrong with leaning into historical patterns, provided the goal is long-term capital appreciation. With that in mind, Wall Street is particularly bullish on Amazon (AMZN 0.80%) and Uber Technologies (UBER 0.06%).
- Among the 65 analysts who follow Amazon, 95% rate the stock a buy and the other 5% rate the stock a hold. The median price target of $220 per share implies 20% upside from its current share price of $183.
- Among the 56 analysts who follow Uber, 88% rate the stock a buy and the other 13% rate the stock a hold. The median price target of $90 per share implies an 18% upside from its current share price of $76.
Holiday spending should be a near-term catalyst for Amazon, and Uber should benefit from holiday travelers in need of transportation. But even if gains fail to materialize in the fourth quarter, both stocks are smart long-term investments.
1. Amazon
Amazon has a strong presence in three markets and is gaining share in all of them. Its online marketplace will account for 40.4% of retail e-commerce sales in the U.S. this year, up 100 basis points from the previous year.
The company will also account for 13.9% of digital ad sales in the U.S. this year, up 140 basis points from the previous year. Amazon is currently the third-largest domestic digital advertiser but could overtake second-place Meta Platforms by the end of the decade, according to eMarketer.
Meanwhile, Amazon Web Services (AWS) accounted for 32% of cloud infrastructure and platform services in the second quarter, up 100 basis points sequentially due to strength in artificial intelligence (AI). Research company Gartner recently recognized AWS as a leader in cloud AI developer services. “Our AI business continues to grow dramatically with a multibillion-dollar revenue run rate,” Amazon CEO Andy Jassy told analysts.
The company reported mixed financial results in the second quarter, missing on the top line and beating on the bottom line. Revenue rose 10% to $148 billion, a little slower than expected as consumer spending faced headwinds from the somewhat challenging economy. But GAAP earnings soared 94% to $1.26 per share as the high-margin advertising and cloud services businesses continued to grow more quickly than low-margin retail.
Looking ahead, Wall Street expects Amazon’s earnings to increase at 25% annually through 2026. That consensus estimate makes the current valuation of 43.8 times earnings look reasonable. Patient investors should have no reservations about buying a few shares of this stock today.
2. Uber Technologies
Uber dominates the U.S. rideshare market with 76% share, according to Bloomberg. It also ranks second in food delivery services, with 24% market share.
What sets Uber apart is its ability to blend those services on a single platform, creating cross-selling opportunities that are deepening its relationship with users. For instance, 31% of first-delivery trips come from rideshare users, and 22% of first rideshare trips come from delivery users.
Uber looked strong in the second quarter. Monthly active platform consumers increased 14%, but the number of trips jumped 21%, so users are engaging with the platform more frequently. In turn, revenue increased 16% to $10.7 billion on particularly strong sales growth in the mobility segment (ridesharing) and modest sales growth in delivery. Meanwhile, GAAP earnings increased 161% to $0.47 per diluted share.
Importantly, management highlighted progress in grocery and advertising, two of Uber’s newer markets. About 15% of food delivery customers are using the platform for groceries, up 200 basis points from the previous year. Additionally, Uber recently achieved a $1 billion revenue run rate in advertising.
Looking ahead, Uber has a significant opportunity where autonomous vehicles are concerned. Robotaxis would reduce operational expenses, which would boost margins and/or revenue. To elaborate, margins would increase because Uber wouldn’t need to pay as many drivers. Additionally, the company could also afford to charge less for ridesharing, which could boost demand and increase revenue.
Either way, Uber should be a major beneficiary of autonomous driving technology. Its user base makes it an attractive partner for companies that want to operate robotaxi platforms. “Uber is uniquely positioned to offer tremendous value for [autonomous vehicle] players looking to deploy their technology at scale,” CEO Dara Khosrowshahi recently told analysts.
Turning to the more immediate future, the ridesharing services market is forecast to grow 16% annually through 2030. Meanwhile, Wall Street expects Uber’s earnings to grow at 65% annually through 2026.
That consensus estimate makes its current valuation of 82 times earnings look reasonable. Patient investors should feel comfortable buying a small position in this stock today.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Uber Technologies. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.