The Case For AMZN, Is Amazon.com Inc A Buy?

Over the past six-months or so, it seems as though Amazon can do nothing right! It’s as though, right on cue, a rash of synchronized damaging headlines world-wide have created an aura of negativity around the stock price. Does that mean that investors should stay away from this tech giant?

Headlines and headwinds

It’s often said that looking for good stock investments is akin to painstaking detective work. And the best way to do your diligence on a prospective investment is to carefully monitor the news about your intended stock pick. So, imagine what you might think about the headlines that Amazon.com, Inc. (AMZN) has received over the last 6-months or so:

It’s understandable that headlines such as these would cause potential investors to pause a bit before adding the name to their portfolio. But a short-term price movement chart would do more than just give pause for thought.

Amazon.com-Inc_$AMZN

Anyone contemplating a buy on AMZN would take one look at that chart and run for the hills. And who would blame them. Over the past 3-months or so, as the negative headlines kept piling on, AMZN is down by over 16% – an “I told you so!” moment for the bears!

The Bears Say What?

According to one source, AMZN is held in various quantities by no less than 207 US-Traded Exchange Traded Funds (ETFs). So why should that worry prospective investors? One word: Liquidity! Detractors of the name point to the fact that, when ETFs see bad news on the horizon for AMZN, they’ll try to exit the name as fast as they can. And considering how largely-held the name is in passive ETFs, that could spell a real liquidity event for the stock: Not a good thing for the stock price!

Bears also point to the name’s susceptibility to Tweets from the Whitehouse, a single one of which could drag the stock down precipitously in intra-day trading. And that means investors with weak volatility tolerance have no business owning the name.

On Oct 29th, AMZN slumped 6.3%, and then went on to dip by more than 14% over the next two days to clock its worst losing streak in over 56 months. To put things in perspective, the stock slugged it out for 18 grueling years to achieve $250B in market cap – but lost as much in just a few weeks in the Aug-Oct timeframe.

Fundamental-watchers also point to AMZN’s “disappointing” Q3 financial performance, which lead the stock to plunge over 10% during the day. True, Q3 earnings came in stronger than analyst expectation, but the Bears look to the company’s poor revenue and disappointing Q4-outlook to further their case to sell AMZN. Q4 is usually this giant internet retailers’ best quarter, and weak guidance does not bode well for the name.

The Bull Case

The Bulls, on the other hand, point to the fact that a single quarterly result doesn’t make a trend. Nor are they willing to throw in the towel with less-than-optimistic guidance for the coming holiday season. Leading analysts are up-beat on Jeff Bezos’ ability to deliver on multiple fronts, including online retailing, advertising, co-branded credit cards, private label goods, consumer products, cloud computing, video streaming and much more.

The company’s recent aggressive plans to move into the health care sector, in partnership with Berkshire Hathaway and JP Morgan, is also seen by the Bulls as positive. AMZN’s purchase of Whole Foods is also considered a wise move, and provides the company long-term opportunity to offer its tech devices through brick-and-mortar space in the food retailers front shelfs.

AMZN’s potentially disruptive Amazon GO initiative, a cashier-less retail store payment technology, could be the way that all retailers approach check-outs in the future.

More importantly though, the Bulls see exceptional opportunity for the company in the fin-tech space. With its own Amazon Pay offering, AMZN is gunning fast and furious against established financial payment rivals like PayPal and Visa, and digital wallet leaders like Apple Pay. Initially, the company seems to be targeting non-competitors, like gas stations and restaurants – a wise move that’ll allow Amazon Pay to establish itself.

The company’s moves in India, where it offers EMI (a form of installment payment for big-ticket items) through Amazon Pay, as well its targeting market rivals in China, notably WeChat Pay and Ali Pay, are also seen as offering significant future revenue opportunity.

The Verdict: Bye, bye…or Buy, buy?

While the Bears make a strong “bye, bye” case – at least for the near-term, one shouldn’t have a three- or six-month outlook for a tech stock like AMZN. As a growth vehicle for any portfolio, AMZN should do well over a longer-term holding period. If you aren’t convinced that a name like AMZN belongs in your portfolio, then consider a hold and wait strategy.

Following the company’s Q3 results, some of the leading analysts from the investment world have rated AMZN a buy. These include UBS, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse, Barclays, JP Morgan, Deutsche Bank…and the list goes on, and on, and on! At the time of this writing, 28 analysts held a Buy-rating on AMZN, while 15 have it rated as a Strong buy.

Amazon.com-Inc_$AMZN

AMZN’s stellar performance over Black Friday and Cyber Monday were categorized by the company as “best ever!”. A 1-year price chart will show that the Bull’s “buy, buy” case is stronger than the Bear’s “bye, bye” pronouncements. Over that period, AMZN is up by nearly 43% – despite this being an unusually turbulent year for all of the FANG names. But over a 2-year (up 119%) and 5-year (up 314%) period, AMZN has more than rewarded patient investors that have shown faith in the name and held on the name – and perhaps even bought on dips.

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Author does not have investment in stock discussed in this article.

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