Last time, we argued why investors shouldn't buy AMZN yet. Today, we present the opposite perspective. Here's why we think Amazon is a must-have in your portfolio.
In our last take, The Amazon Maven presented three reasons why investors should not buy (or at least wait to buy) shares. Our arguments revolved mostly around macroeconomic headwinds, which interfere in the expectations for e-commerce businesses in general.
However, investing in Amazon has proven to be more of a long run than a short sprint. Despite all the uncertainty surrounding the short term, not only is the Seattle-based titan poised to prevail in the e-commerce industry for the upcoming years, but it also has proven its expertise in other industries. Here's why you could be missing out by not owning Amazon stock right now.
1. It Has Amazon Web Services
Online retail is far from being Amazon’s flagship nowadays. That post belongs to AWS. The cloud business was responsible for generating nearly 75% of Amazon’s operating income in 2021. Tt has shown two-digit growth for the last few quarters (and is expected to keep up that pace). And its business growth is not directly correlated to any macro headwind.
In one of his articles about FANGAM stocks,Dean of Valuation Aswath Damodaran argued there are three main characteristics that set these tech companies apart from any others.
The very first reason: They are cash-generating machines. In Damodaran’s words, every one of the FANGAM companies has a core business that generates enormous amounts of cash and possesses high margins at the same time.
In Amazon’s case, he argued, this feature is AWS, not e-commerce. That statement implies Amazon only stands as an equal to its FANGAM peers not for being an e-commerce titan, but for being a cloud titan.
2. It's a Long-Term Winner
And the company's strengths don't lie solely with its web services. In Damodaran’s words, Amazon seems to be willing to enter into any industry where it perceives inefficiencies and believes it has any edge over its competitors.
That can be seen in Amazon’s strategy to enhance its flywheel of products. The company is poised to become an important advertising player. It has one of the largest streaming services available. And it possesses a gigantic pool of secondary ventures, such as gaming, logistic services, streaming platforms, gadgets, and venture capital investments (which recently generated huge capital gains thanks to the Rivian investment).
3. It's Reasonably Priced
The Amazon Maven has argued how Amazon stock has suddenly became a winner for the year. Well, we've got good news and bad news.
The bad news is the recent rally pushed trading prices about 16% higher within a mere period of two weeks.
But the good news is the stock is still cheap. By analyzing the company’s P/E multiple for the last five years, we realize shares are still far from historical highs.
And experts from top firms seem to agree that the market is underappreciating the stock. Of the 29 analysts covering Amazon stock on TipRanks, all of them have a buy recommendation, with an average price of $4,200 and a 27% upside.
