The FAANG group of tech stocks have been blasé so far in 2021, including Amazon (Amazon Stock Quote, Chart, News, Analysts, Financials NASDAQ:AMZN), which has been fairly flat since last summer. Has the e-commerce giant hit a ceiling or is this just a high-performer taking a bit of a breather? Probably the latter, says Scotia Wealth Management’s Greg Newman, who likes AMZN’s long-term prospects.
“[Amazon is] the best tech company to be buying, even now,” says Newman, director of wealth management at Scotia, who spoke on BNN Bloomberg on Friday.
“We can talk about sober evaluations or un-sober evaluations in the tech space. Well, these guys trade around 35x 2023 yet has a 37 per cent earnings per share growth rate, so they’re still at a PEG of close to one.”
It’s now no surprise that Amazon did exceedingly well in 2020, both as a company and a stock, surging on the accelerated shift to online commerce. That trend had been developing for years, but the COVID-19 pandemic sped up the process, boosting Amazon’s business. In some areas like grocery, the company saw online sales more than double during the height of lockdowns last year.
And there may be no turning back, even as customers return to bricks and mortar stores in 2021. Amazon reported first quarter 2021 earnings last month where sales jumped 44 per cent year-over-year to $108.5 billion, handily beating analysts’ estimates at $104.5 billion. The company is making money, too, showing Q1 earnings of $15.79 per share compared to the consensus call for $9.54 per share.
Management has guided for second quarter 2021 revenue to grow at the more restrained pace of between 24 and 30 per cent and reaching $110-116 billion.
In his Q1 comments on the company’s path so far, CEO Jeff Bezos chose to focus on Prime Video and cloud computing powerhouse Amazon Web Services, saying in an April 29 press release,
“In just 15 years, AWS has become a $54 billion annual sales run rate business competing against the world’s largest technology companies, and its growth is accelerating — up 32 per cent year-over-year. Companies from Airbnb to McDonald’s to Volkswagen come to AWS because we offer what is by far the broadest set of tools and services available, and we continue to invent relentlessly on their behalf. We love Prime Video and AWS, and we’re proud to have them in the family,” Bezos wrote.
Amazon finished 2020 up a monstrous 76 per cent, which was even more remarkable as the bulk of those gains were over the first half of the year. For the past ten months dating back to mid-July 2020, AMZN is up just eight per cent.
That’s in contrast to some of the stock’s FAANG compatriots like Alphabet, which is up 56 per cent over the past ten months, Facebook, which is up 41 per cent, and Apple, which has gained 37 per cent.
Tech in general has been less buoyant in 2021, however, as the market has moved its preferences over to other sectors, eyeing economic growth in a post-pandemic global environment. The tech-heavy NASDAQ as a whole is up seven per cent year-to-date, whereas the broader S&P 500 is up 13 per cent. For a more focused look, the SPDR NYSE Technology ETF , which tracks a list of the 35 leading US-listed tech companies, is up a tiny four per cent for 2021 compared to its 2020 gains of 73 per cent.
But Newman says if you are shopping among the Big Tech names, Amazon should be in your cart.
“If you’re going to be buying any tech stock, that’s the one,” Newman said. “Is it going higher? Nobody has a crystal ball, but I would say yes.”
“I’m pretty gung-ho that Amazon will be much higher in the next couple of years,” he said. “This stock could be trading at a higher multiple.”
Newman says there’s a chance that Amazon may spin off its AWS business as a result of regulatory pressure to meet anti-trust concerns among the Big Tech companies. AWS has been a strong growth engine for Amazon for a number of years, increasing its revenue by 32 per cent year-over-year in the company’s first quarter 2021 to $13.50 billion.
“There is a risk that Big Tech does have a bullseye and they are dominant and the government could break them up and [Amazon] could spin out AWS. But at the end of the day that would probably yield more shareholder value,” Newman said.
Amazon has made news early this week as it is reportedly close to acquiring Hollywood studio MGM Holdings in a deal worth $9 billion. The purchase would be Amazon’s largest since acquiring Whole Foods in 2017 for $13.7 billion and would beef up the company’s Prime Video title catalog to help in its competition with fellow streaming services like Netflix and Disney.