Amazon (Amazon Stock Quote, News, Chart NASDAQ:AMZN) has taken a tumble over the past couple of weeks, leading investors to worry about what was once a strong performing name from the FAANG group of stocks.
But the pullback should be nothing to fear, says David Burrows of Barometer Capital Management, who thinks investors should buy Amazon now as it presents a nice entry point.
The dip began with Amazon’s second quarter earnings delivered on July 25 which while looking strong on revenue growth failed to meet expectations for profit. The Q2 came in with a top line of $63.4 billion in comparison to the consensus estimate of $62.5 billion and EPS of $5.22 per share versus the expected $5.57 per share. (All figures in US dollars.)
The ecommerce giant had promised to spend more on improving infrastructure and that it did, putting $800 million towards warehouses and delivery infrastructure over the second quarter, all in effort to shore up its one-day shipping platform for Prime members. The extra spending resulted in lower Q2 earnings but also put a damper on management’s third-quarter forecast which put operating income between $2.1 billion and $3.1 billion, well off expectations which averaged out at $4.4 billion.
That led to a drop in share price from a high of $2001.20 on July 25 to where the stock currently sits as of late-day trading on Wednesday at $1,781.08, almost an 11-per-cent decline.
But the stock looks good from here, says Burrows, president and chief investment strategist at Barometer, who spoke to BNN Bloomberg on Tuesday.
“Amazon consolidated and put in a high in December 2017,” says Burrows. “It chopped sideways through the course of the year and came back and made a new high and has just pulled back off of the new high.”
“If you were to look at Amazon it looks a lot like a lot of consumer stocks which have pulled back over the last two or three weeks. I think that the US consumer [sector] is in great shape. I’d be a buyer of the stock here,” he says.
Investors might have been concerned this week with the news that Amazon CEO Jeff Bezos had recently sold off almost $1 billion of his shares in the company, but the move was reportedly preplanned as Bezoa said that he aims to sell about that much per year to fund his privately funded aerospace and spaceflight company.
Buy Amazon? The stock has consolidated nicely, Burrows says…
Burrows says that AMZN has technical indicators in its favour.
“It’s trading right on its rising 150-day moving average, it’s got great support in here. It pulled back in May to $1672 and it’s sitting at $1760. I think it’s a good entry point. I think that you’re likely to do well with the stock over the next 12 months,” Burrows says.
For years, Amazon was famous for generating amazing returns, having climbed steadily from the sub-$100 range in mid-2009 to a high of $2022 by September of last year. The stock’s path since then has been up and down, with AMZN currently sitting up 18.8 per cent year-to-date.
Disclosure: Cantech Letter’s Nick Waddell owns shares of Amazon