Amazon (Amazon Stock Quote, Chart NASDAQ:AMZN) once again has investors all abuzz, this time for a quirky side debate that emerged when famed advocate of value investing, Warren Buffett, recently admitted that his company had for the first time purchased a position in the e-commerce giant.
Is Amazon’s inclusion among Berkshire Hathaway’s stable of investments a sign that the Oracle of Omaha has softened his stance towards growth stocks like the FAANGs? Likely not, says Andrew McCreath of BNN Bloomberg, who thinks the purchase could mean that Amazon is now a value stock.
Last week, Buffett spoke ahead of Berkshire Hathaway’s annual meeting and admitted that he had made a mistake in not buying Amazon years ago. But he also muddied the waters surrounding the idea of value investing, a philosophy closely linked to Buffett over the years.
First articulated by Benjamin Graham and David Dodd in the early 1930s, the value approach promotes buying companies which, through the use of fundamental analysis tools such as price-to-book ratio and price-earnings ratio, appear to be under-appreciated by the market. The theory stands in contrast to growth investing, which focuses more on capital appreciation as an indicator and puts less weight on a stock’s current valuation.
But that distinction might have gotten a little fuzzier with Buffett’s recent claims that his company’s purchase of Amazon is not out of line with Berkshire’s general approach to investing, stating, “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,” Buffett said. “That has not changed.”
Buffett even parried the objection that Amazon’s valuation — which includes a P/E ratio of 96, far beyond the norm for so-called value stocks — is not in keeping with Berkshire’s approach, saying, “You are putting some money out now to get some money later on, and you are making a calculation as to the probabilities of getting that money and when you will get it.”
“The considerations are identical when you buy Amazon versus some bank stock that looks cheap consistently book value or earnings,” he said.
McCreath says the statements by Buffett call Amazon’s status as a growth stock par excellence into question.
“I actually think that Warren Buffett’s admission that he should have bought Amazon a while back and that he’s buying it now … Warren Buffett is considered to be a value investor, and so maybe that means that Amazon can be considered a value stock,” said McCreath to BNN Bloomberg on Friday.
Amazon, which is still off its all-time highs set this past September, has been flying high in 2019, with the stock currently up 29 per cent year-to-date. The share price got a boost at the end of April as the company reported first quarter financials that surpassed expectations on profit and met analysts’ targets for revenue.
Disclosure: Cantech’s Nick Waddell owns shares of Amazon.