The market may have soured on the big tech stocks like Apple and Amazon (Amazon Stock Quote, Chart NASDAQ:AMZN) over the past couple of weeks but investors should be taking up the opportunity and buying Amazon on the pullback, says Rob Lauzon, deputy chief investment officer at Middlefield Capital, who argues that the stock is a lot safer than people give it credit for.
Amazon’s share price looked to be heading back to the highs set last summer when the stock topped $2,000 and put the e-commerce giant briefly in the $1-trillion market cap club. But trade worries and market unease over exposure to China among the big tech companies have hampered the stock, which has lost seven per cent of its value since early May.
But for all of its ups and downs in recent years, Amazon could be entering a more secure environment, says Lauzon, who thinks that even a dividend might one day become a reality.
“Amazon is pervasive. We’ve all become connected, digital consumers. Amazon has really become a consumer staple stock. I order from Amazon and there’s a box that shows up at my office a couple of times a week. Through that lens, I think it has become a little more safe and less volatile than investors should view it,” says Lauzon, to BNN Bloomberg on Thursday.
“It always looks expensive on P/E because given the size it’s still growing at 30 per cent a year,” he says. “They’re going after the consumer which is a $10-trillion market and the addressable market business-to-business is $10-trillion. They’re going after pharmaceuticals. Given their Prime membership and that ecosystem, they’re going to be going after credit cards, going after mortgages over time, in my opinion. So there’s still lots of running room left for Amazon.”
Amazon’s stock to $3000?
Investment bankers Piper Jaffray on Friday announced that it expects Amazon to reach $3,000 per share within two or three years, and that’s without significant upgrades to the company’s current business model or major acquisitions.
For his part, Berkshire Hathaway’s Warren Buffett made headlines earlier this month saying that his company had bought Amazon shares for the first time and that, from Buffett’s perspective, at least, buying Amazon these days is not contrary to value (as opposed to growth) investing principles, simply because Amazon’s future cash flow prospects are so good.
“The people making the decision on Amazon are absolutely [as] much value investors as I was when I was looking around for all these things selling below working capital years ago. That has not changed,” said Buffett.
Lauzon echoes the claim, saying, “E-commerce is not going away — it’s only going to get bigger … Wall Street has really given [Amazon] a free pass to take cash flow, inject it back into the business and not show earnings and give it a pretty strong multiple. If it pulled back on a lot of the expenditure and growth, you’d have a lot of earnings here that would make value investors feel better.”
“But there’s still a lot of running room that the company has in front of it. It can be volatile so buy it on dips,” he says.
Disclosure: Cantech’s Nick Waddell owns shares of Amazon