There may be some questionable stocks in your portfolio but Amazon (NASDAQ:AMZN) isn’t one of them, says Rob Lauzon of Middlefield Capital Corporation, who claims that the online behemoth would have huge earnings if it didn’t keep feeding its massive expansion plans.
Shares of Amazon reached a new high last Friday, topping out at US$1,638.10 per share. That’s a 78 per cent jump in price from a year ago, making investors who own the stock more than happy and those on the outside looking in more than a little worried that it might be too late to join the party.
Not really, says Lauzon, who says the company’s fundamentals would look a lot more appealing if it weren’t for all that capital expenditure.
“They reinvest a lot in the business — if they pulled all of their capex out one year, you’d see massive earnings on this company, so the company is not as expensive as it seems because it’s got a large capex line. It can be cash flow positive and its EPS growth would look phenomenal at any point,” says Lauzon, deputy chief investment officer at Middlefield Capital, to BNN Bloomberg.
The latest from Amazon includes ventures such as monetizing its personal assistant, Alexa, and selling its own brand of dog food. Speculation has been high concerning the company’s potential move into the pharmaceutical sector but that plan appears to be now on the back burner, according to recent reports. At the same time, Amazon has announced expansion plans at its offices in Vancouver, Boston and Las Vegas, while the company’s city choice for its coveted HQ2 is still unknown.
“[Amazon] is not going to get into solving complex issues for us, but if they can get a package to us within 24 hours, if they can get quality food to us within 24 hours, if they can disrupt industries that are making excess profits like the health care industry …” says Lauzon.
“They’re never going to try to create the next wonder drug but if there are layers of middlemen and everybody’s taking 20 per cent margins, the client will benefit if that 20 per cent is taken out of that health care. That will help with the GMs of the world with the costs of their health benefit plans and it helps the government subsidization, so that’s a good thing,” he says.
“Amazon has been a rocket of a stock,” he says. “That’s not to say that you don’t take a little profit, maybe every time the stock makes you an extra 20 per cent, pull off five per cent of your weight, that’s always prudent,” Lauzon says.
Disclosure: Cantech’s Nick Waddell owns shares of Amazon