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Now's the Time to Buy These Stocks

John Ballard, The Motley Fool

Stocks are 10 years into a bull market, which means it's getting harder to find good deals. However, there are still stocks out there worth buying if you know where to look.

Here's why I believe Amazon.com (NASDAQ: AMZN), Mattel (NASDAQ: MAT), and St. Joe (NYSE: JOE) are worthy of investors' money at current prices.

A man, with eyes opened wide, gazes at something in a chest that is glowing bright.

IMAGE SOURCE: GETTY IMAGES.

1. Amazon.com

Shares of Amazon have shot up 2,300% over the last decade, but don't think you have missed the boat -- there are two good reasons why the stock is still a great investment at the current price of $1,831 per share.

First, there's still a long runway of opportunity in e-commerce, given that physical stores still generate about 90% of worldwide retail sales. 

Plus, Amazon's relentless focus on delivering a better customer experience with technology will likely keep it ahead of the competition. For example, the company continues to push forward with the use of robots to lower fulfillment costs, which speeds up order processing and allows Amazon to pass the cost savings to customers with lower prices. 

Second, and perhaps the best reason to consider buying Amazon, is the fast growth of Amazon Web Services (AWS). AWS sales increased 41% year over year last quarter, and it's now generating an annual run rate of $30 billion in revenue. More important, AWS produces an operating margin of around 30%, which means it comprises most of Amazon's profit right now.

Consider this: IBM is acquiring Red Hat, an enterprise cloud service provider, for 10 times sales. Applying the same valuationto AWS gives a valuation of $300 billion. However, AWS could be worth more since it is growing faster and earning better margins. 

Analysts think AWS will be worth between $350 billion and $1 trillion within the next five years. Amazon's market value is currently $905 billion (total shares outstanding times the stock price), which means investors are placing a fair value on AWS five years out but assigning much less value to the rest of the company.

2. Mattel

Shares of Mattel, the maker of Hot Wheels and Barbie, fell hard over the last few years. The stock's slide stemmed from previous management mistakes that left the company debt-ridden and unprofitable. But new management has stepped in and has a plan to turn Mattel into one of the most profitable companies in the industry. 

Recent results show management's strategy is working. In the first quarter, constant currency sales increased 1% year over year. More encouraging was the improvement in adjusted gross margin, which expanded by 670 basis points. Higher margins benefited the bottom line, as adjusted operating loss significantly narrowed year over year by nearly $150 million. These are very encouraging results and mark the third quarter in a row of improving gross margin and operating income. 

MAT Gross Profit Margin (TTM) Chart

MAT Gross Profit Margin (TTM) data by YCharts.

Mattel continues to be a partner of choice for Walt Disney's Pixar film properties, as the maker of licensed toys for Toy Story and Cars. Also, to drive growth Mattel has partnered with MGM studios to produce live-action movies based on some of its brands, including Hot Wheels and Barbie. 

The stock is relatively cheap at a price-to-sales ratio of 0.87, while its rival Hasbro trades for 2.65 times sales. I's a good time to consider buying shares, before better news sends the stock higher.

3. St. Joe

St. Joe is a real estate development company in the vacation magnet that is Northwest Florida. It owns and operates several valuable properties, including the WaterColor Inn in Seaside, as well as several residential communities. It also owns 115,000 acres of forestry, which generate a small amount of revenue every year in timber sales. 

In total, the company owns 170,000 acres of land -- about two-thirds of it is within 10 miles of the Gulf of Mexico. Management holds these properties to either develop and operate or sell to someone else who can better utilize the land.  

After several years of low activity, management is finally starting to be more proactive in unlocking the value of its vast real estate holdings. The time is ripe as Northwest Florida is bustling with economic activity as vacationers flock to the beautiful beaches along the Gulf Coast. 

There are several projects underway, including building apartments, beach clubs, office parks, marinas, more residential communities, and more hotels. Over the last three years, capital expenditures have increased 30% to $31 million -- a leading indicator of revenue and profits. 

What's more, St. Joe has a financially sound balance sheet, with about $240 million in cash and short-term investments, $365 million worth of real estate investments, and just $78 million of debt. The company currently has a market value of $1 billion. 

Management clearly sees value in the shares as it has repurchased 34% of the company's shares outstanding over the last five years -- a clear signal that the stock may be undervalued. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Hasbro. The Motley Fool is short shares of Hasbro and IBM. The Motley Fool has a disclosure policy.