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Amazon is headed to $4,500, this investor says

Amazon Stock

Market watchers have been waiting for signs that tech juggernaut Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN) is once again on the march. But portfolio manager Bruce Murray says you don’t have to wait: just buy the stock and hold it forever.

It was only a month ago when it looked Amazon would be breaking out of a year-long funk where the stock had been treading water between $3,000 and $3,400 since last July. The extended pause was certainly a change of pace after AMZN went on a rampage over the first stretch of the pandemic, effectively doubling in value from March 2020 lows to mid-summer of last year.

Investors had taken to the stock in droves as Amazon was seen as a clear winner in the COVID lockdown days, where everything was happening online and UPS and FedEx trucks seemed to multiplying of their own accord.  

Then, after months and months of being range-bound, Amazon finally started climbing in early July. the stock broke above the $3,600 mark for the first time and looked to be headed higher. A new CEO and a new deal with Comcast and Universal for Amazon’s Prime Video streaming service were part of the news cycle on the company, which tacked on 18 per cent to its share price between early June and mid-July.

But an earnings miss with the company’s second quarter 2021 results in late July dropped the stock once again into the $3,300 range. Amazon managed a slight miss on revenue for the Q2, coming in with $113.08 billion compared to analysts’ consensus forecast at $115.2 billion, while still beating the Street on earnings at $15.12 per share compared to the forecasted $12.30 per share. (All figures in US dollars.)

A more muted outlook was also a factor, where management guided for third quarter revenue between $106 and $112 billion, representing a 10-16 per cent growth rate year-over-year but still below analysts’ estimates at $119.2 billion.

“Over the past 18 months, our consumer business has been called on to deliver an unprecedented number of items, including PPE, food, and other products that helped communities around the world cope with the difficult circumstances of the pandemic. At the same time, AWS has helped so many businesses and governments maintain business continuity, and we’ve seen AWS growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud,” said Andy Jassy, Amazon CEO, in a press release.

But investors shouldn’t be bothered by such minor hiccups, according to Murray, CEO of the Murray Wealth Group, who spoke about Amazon on BNN Bloomberg on Monday.

“We would [be buyers now] and Amazon’s one of the largest holdings in our portfolio,” said Murray, 

“Amazon is continuing to grow and it’s getting more profitable as it gets bigger, which is, very encouraging. Amazon Web Services is the largest provider of cloud computing, their Amazon Prime membership continues to grow and they have the ability to increase that price over time and then the third area they’re starting to do well in is advertising [where they’re] selling ad space to their website vendors,” he said.

Murray credits the higher margin businesses that Amazon continues to grow into as a main reason investors should be bullish on the stock.

“All of these businesses have much, much higher margins than the traditional Amazon Marketplace business of selling goods at a retail level for margins that are probably three to five per cent,” Murray said. “Some of these businesses have margins of 50 to 70 per cent.”

“So, we love Amazon. The stock didn’t do much [over the past 12 months] — it got caught up in the reopening trade — but we think Amazon is a great long term hold and will do very, very well,” he said.

“I think the stock could be $1,000 higher than where it trades today in the next 12 to 18 months,” Murray said.

By segment, Amazon Web Services saw growth of 37 per cent over the company’s second quarter, which was up five per cent from the previous quarter, bringing in revenue of $14.81 billion. Amazon’s North America business, which makes up the bulk of its revenue, delivered $67.6 billion in net sales for the Q2 and its International business grew from $22.7 billion a year ago to $30.7 billion in net sales.

On the second quarter conference call, CFO Brian Olsavsky called the company’s advertising business “another part of our flywheel.” 

“We have traffic coming in for the consumer business. And if we do a good job with advertising, we’ll make it an additive experience for our customers and our sellers and vendors. So that’s what we work on is to make sure that it’s a relevant experience and adds to your shopping experience and helps you find selection that perhaps you wouldn’t have found otherwise or it would have been harder to,” Olsavsky said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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