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Not even a brutal market selloff can keep Amazon.com Inc. (AMZN) down.
Here’s the thing. This is no ordinary bear market, one defined as a 20% drop from the previous high.
It’s the coronavirus panic that has most of the economy in a deep freeze.
As a result, physical retail stores are getting hammered. The U.S. Commerce Department says retail sales for March fell a seasonally adjusted 8.7%.
That’s the biggest one-month decline since the agency began keeping records back in 1992.
And while Amazon definitely faced some supply chain issues, the King of E-commerce came through when the nation needed the tech giant’s help the most. It delivered millions of packages to homebound families all across America.
With that performance under its belt, yesterday the firm’s stock hit a record high – a feat that few stocks can match.
Responding to the Times
Now then, I think it’s safe to say that Amazon is now an elite stock for the record books. It boasts a market cap of nearly $1.2 trillion.
More to the point, it has performed better in this market than two other $1 trillion stocks. Both Microsoft Corp. (MSFT), valued at $1.3 trillion, and Apple Inc. (AAPL), valued at $1.2 trillion, remain off their recent highs.
Indeed, on Thursday Amazon hit a closing high of $2,400. The bellwether S&P 500 closed at just about break-even for the day, by contrast, and off just shy of 18% since hitting its high on February 19.
And it also stands in sharp contrast to brick-and-mortar stores.
Consider that Amazon plans to hire another 75,000 workers. That’s on top of the 100,000 it already hired to meet surging demand for online sales during the coronavirus lockdown.
Consider that electronics retailer Best Buy Co. Inc. (BBY) is laying off 51,000 hourly workers. The retailer had limited customers to delivery and curbside pickup only.
Yes, we’re focusing on Amazon’s great current performance. But there is much more going on here than meeting online demand, much of it behind the scenes.
The Endless Drive for Growth
Make no mistake; Amazon CEO Jeff Bezos just never quits looking for ways to add more growth. The idea is simple: continue to build investor value with high-margin growth that juices up the earnings per share.
Here are four examples of just what I’m talking about.
- In February 2019, it was the lead investor in electric-truck maker Rivian.
- It was also among the lead investors in a recent $530 million financing for Aurora Innovation, a self-driving auto startup.
- The firm invested just shy of $1 billion in 2018 for PillPack, moving in into the online-pharmacy business.
- And roughly a year ago, we learned it wants to launch a constellation of 3,236 satellites to beam down broadband Web access to much of the world.
Those kinds of deals don’t generate the type of heavy buzz Amazon got when it bought upscale grocery leader Whole Foods in 2017. At a cool $13.4 billion, the price tag stood out.
But it’s the quiet moves that have often made this such a well-run firm.
It’s hard to believe in retrospect just what a big deal Bezos created with the 1-Click feature on September 12, 1997. That tech breakthrough helped Amazon pull away from a crowded online shopping field to become the undisputed leader.
Today, there are literally hundreds of thousands of goods you can buy through the portal. And Bezos was savvy in the way he kept adding more third-party merchants who could sell through the store.
Consider that Amazon now has more than 2 million vendors who use its storefront. Of those, some 100,000 each sold $100,000 worth of goods in 2018 alone. That’s a total of $10 billion in gross sales for only the top 5% of those third-party sellers.
A Dynamic Outlook
Let’s not forget the firm’s Amazon Web Services (AWS) is nothing short of a cloud-hosting juggernaut. It quietly launched in 2002 as a simple add-on service making good use of its racks of servers.
Today, it remains the clear hosting leader. Last year, cloud sales hit $35 billion. That’s more than 10 times the revenue back in 2013.
Meantime, Amazon has moved into smart speakers. Its Alexa is considered state of the art in AI-driven home systems.
The firm also has jumped into online streaming. It has competitive offerings in both music and on-demand video, with the latter delivering it three Oscars.
Meantime, the company is a marvel of logistics. It has invested billions in cutting-edge robotics, software, and automation, not to mention having its own fleet of delivery vehicles.
This is why Prime members can now get same-day delivery for hundreds of products.
Now then, the company reports earnings on April 23. If we get lucky, Amazon will miss forecasts and the stock will sell off.
This will give us the chance to buy at a discount from the stock’s amazing trajectory to $3,000 and beyond.
Consider this: for the past three years, Amazon has grown its earnings per share by roughly 107%. That’s a run rate of doubling roughly every nine months.
But let’s take a more conservative approach and cut that figure back by two-thirds.
We’d still see the per-share profits doubling in just a tad over two years. Even if we double the period to be extra conservative, we’re looking at 100% gains in less than five years.
Now you know why I believe my $3,000 price tag is once again on the money.
In other words, this mega-cap stock is the kind you can count on for the long haul.
And that makes it a great foundational holding, especially in today’s rocky market.
Cheers and good investing,
Michael A. Robinson