Equity markets have not performed well so far in 2025, with macroeconomic tensions, including President Donald Trump's trade wars, playing a role. On the bright side, the ongoing volatility could create excellent opportunities to buy shares of great companies on the dip.
Take Amazon(NASDAQ: AMZN) and Bank of America(NYSE: BAC), two leaders in their respective industries that feature in Warren Buffett's Berkshire Hathaway portfolio. After significant pullbacks for both stocks since the year started, they boast substantial upside, according to analysts.
Wall Street's average price target of $264.71 for Amazon (per Yahoo! Finance) implies an upside of 37% from its current levels, while Bank of America's price target of $52.83 says it could jump by 33%. The street thinks these stocks are buys, but what should investors do given the current state of the market? Let's find out.
Some reasons to be pessimistic
It might be tempting to speculate which way the market will go next. You could maximize your gains if you can time the bottom of this ongoing downturn. Further, with fears of a recession mounting, investors might also think avoiding certain industries altogether is best.
Amazon is an e-commerce specialist that also offers a range of other products and services. Most of the company's operating profits don't come from the sale of goods. The tech giant won't perform nearly as well during a recession.
The same goes for Bank of America. Though it is one of the largest companies in this vital industry, bank stocks face significant challenges during poor economic times. The U.S. Federal Reserve might choose to lower interest rates if a recession hits (that's what it usually does) -- that's bad for banks since it means lower interest income. Also, consumers face more financial troubles during bad times, which can lead to higher defaults on loans, which is also bad for banks.
So, Bank of America might not perform well if a recession hits. One could conjure more bearish arguments in favor of avoiding Amazon and Bank of America right now despite Wall Street's price target. However, my view is that both stocks are still worth investing in today.
Looking at the bigger picture
Precisely timing the market is impossible, making it a strategy not worth trying. The formula to earn substantial returns remains the same regardless of what broader equities are doing: Buy shares of great companies and hold on to them for a long time, ideally forever, even through market downturns.
And when bad times hit, it's usually a great time to pick up more shares of these robust businesses. Amazon and Bank of America fit the bill.
Starting with Amazon, it boasts the leading position in several major industries where it does business, significant growth opportunities, and a wide moat. Amazon has the largest market share in the U.S. e-commerce space. It also leads the fast-growing cloud computing industry. It has two especially promising growth opportunities: advertising and cloud computing. The latter is growing even faster thanks to artificial intelligence (AI).
Amazon's advertising business now boasts an annual run rate of $69 billion. It has more than doubled from the $29 billion it had four years ago. Meanwhile, Amazon Web Services, the company's cloud computing arm, has a run rate of $115 billion.
What about Amazon's moat? The company benefits from the network effect within its e-commerce business, while its cloud computing offerings have high switching costs. That's to say nothing of Amazon's brand name, one of the most valuable in the world.
Bank of America's prospects look promising, too. The company is one of the largest banks in the U.S., with a wide range of products and services for all the needs of individuals and businesses of all shapes and sizes. Bank of America's business is diversified across several segments, including consumer banking and investment management.
Thanks to switching costs, Bank of America benefits from a moat, as consumers plugged into its ecosystem can find it challenging to jump ship and leave the convenience and benefits they have built over the years doing business with the company.
Lastly, Bank of America should continue growing its revenue and earnings over the long run as the economy expands, thanks to its entrenched position in the market. Long-term investors can safely add this stock to their portfolios.
Here's the bottom line for both of these stocks. Bank of America and Amazon may or may not hit their price targets in the next 12 months. If I were a betting man, my money would be on they won't.
But that should mean little to those with an investment horizon that spans the next decade. Despite recent volatility, these companies look attractive.
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Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
