Market juggernauts for years now, the FAANG stocks got kicked around over the last quarter of 2018, but they’ve all rallied nicely over January and February.
And while each company has its own set of issues to contend with — regulatory fears for Facebook and Alphabet, phone sales for Apple — Amazon’s (Amazon Stock Quote, Chart NASDAQ:AMZN) case has been made especially intriguing with the public relations cloud hanging over its decision to renege on its second headquarters in New York.
Will the controversy hurt the stock? Hardly, says Stan Wong of Scotia Wealth, who argues that Amazon’s fundamentals are too strong to be denied.
“We own Amazon in our portfolio. I think it’s one of the most interesting, disruptive companies of our time right now,” says Wong, portfolio manager and director of wealth management at Scotia Wealth Management, to BNN Bloomberg on February 28. “When you look at their domination of North American online retail, their gross merchandise volume is at $280 billion as of 2018 and their cloud business continues to grow. I don’t know anybody whose not buying things online and if you’re buying things online, it’s likely through Amazon.”
Up 13 per cent so far in 2019, Amazon’s share price weathered a fourth quarter earnings release in late January which while beating consensus estimates for EPS and revenue, failed to impress on guidance, which said the company would be increasing its capital expenditures this year.
But the seemingly bigger headache on the publicity front looks to be the fallout from its decision not to set up part of its second headquarters in Long Island, New York, a move taken, says the company, in response to opposition from local and state politicians who chafed at the $1.5 billion in incentives proposed with the deal. The company is now facing pressure from activists and politicians relating to the other half of its HQ2 in Northern Virginia.
But Wong says that investors shouldn’t be concerned —plus, the stock is really looking cheap.
“I think from a company and investment standpoint, the company looks attractive,” he says. “If there’s one FAANG stock to look at over the next five years, I think Amazon is still going to be there. It’s going to be very strong.”
“You look at the valuations for Amazon, it is cheaper than it ever has been,” he says. “If you look at the P/E level, it’s now on a forward basis down to 42x and while that sounds high, it was as high as 105x just a few years ago. So that P/E level is coming down, their growth rate is still very strong. We’re looking at 35 per cent long-term growth rates from the EPS.”
So far in 2019, AMZN’s 13 per cent increase is in the middle of the pack compared to gains from the other four FAANG stocks. Facebook is currently up 26 per cent, Apple is up 12 per cent, Netflix is up 32 per cent and Alphabet is up ten per cent.
Disclosure: Cantech Letter’s Nick Waddell owns shares of Amazon