The stock may have been a disappointment over the past 12 months but the longer term prospects for Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN) are just sparkling, says portfolio manager Barry Schwartz, who just named the e-commerce king as one of his top picks for the year ahead.
Amazon saw incredible gains over the first half of 2020 at a time when the world was reeling from the onset of COVID-19. And judging by the number of delivery trucks swarming everyone’s neighbourhood at the time, investing in Amazon seemed like a no-brainer.
Amazon’s numbers in 2020 didn’t go against that sentiment, either, delivering full-year numbers that boggled the senses. Net sales grew by 38 per cent, which is a lot considering the size of the company and a point on which many nay-sayers have been harping for years, namely, that as a company like Amazon gets bigger, it gets more and more difficult to keep up a high-growth pace. Yet there it was, going from $280.5 billion in revenue for 2019 to $386.1 billion for 2020. The company’s profits ballooned similarly, going from $23.01 per share to an incredible $41.83 per share. (All figures in US dollars.)
The company, which reports its third quarter on Thursday, had more muted numbers for its most recent quarter, showing second quarter net sales up 27 per cent year-over-year and net income of $15.12 per share. And the stock has put on just two per cent so far this year compared to a return of 76 per cent for 2020.
But the lull just makes the prospects of a strong AMZN going forward more attractive, says Schwartz, chief investment officer with Baskin Wealth Management.
“Last year, Amazon was unstoppable [and] this year it’s been doing nothing, but you have to take a little longer lens,” said Schwartz, speaking on BNN Bloomberg on Friday. “Why is it doing nothing? Because everybody’s worried about rising shipping costs and fulfillment costs and logistics costs and the supply crunch that we’re having — that’s all temporary.”
“And Amazon is investing for the future. That’s what Amazon does. It doesn’t worry about transitory or temporary costs, and at some point we think the sales are just going to rise so quickly that the operating leverage is going to start to kick in and Amazon’s going to have no choice but to gush profits. As well, the exposure to cloud computing, that’s where the real money is made for Amazon. They have pretty amazing margins in that part of the business, and that’s still growing.”
Shipping, global supply chain, labour and energy issues, not to mention the ongoing semi chip shortage are collectively putting a damper on predictions for a happy and productive holiday season. So far, Amazon has said it’s been taking the necessary steps to stave off empty shelves in its warehouses and keep online shoppers happy.
The company put out a blog post on Monday to tout its investments in supply chain planning, transportation and delivery teams, including an increase by 50 per cent in Amazon’s ports of entry worldwide, a doubling of its container processing capacity and expansion to the company’s ocean freight carrier network partnerships.
“Our teams have been hard at work for months, focusing on capacity and demand planning to balance our customers’ needs against any supply chain or transportation challenges that may occur,” said John Felton, senior vice president of global delivery services for Amazon. “While we are always investing in our supply chain and transportation network, we have done even more this year to ensure we don’t let recent supply-chain constraints impact the Amazon experience for our customers.”
Schwartz says it’s Amazon’s ability to innovate that will keep the company growing, even as its current share price and multiples effectively cast AMZN as not so much a growth stock anymore.
“Every day there’s a new announcement, new things that they’re working on, new technologies. So, this is the dominant company,” Schwartz said. “I think you have to own some of these tech giants and this is one where it really hasn’t run up too bad lately.
“The valuation, it’s now becoming almost a value stock even at 16x forward earnings because those earnings. I mean, we all know Amazon can have higher profits whenever it wants. It just has to raise prices but it’s doing the opposite,” he said.
Amazon announced last week the opening of a new robotics manufacturing facility in Westborough, Massachusetts, saying the plant will provide over 200 new manufacturing jobs to the region.
“As a company, we have created more than 20,000 jobs in Massachusetts since 2010 in communities from Boston to Westborough and beyond. This latest addition to Amazon’s presence in the Commonwealth brings great jobs, from hourly manufacturing roles to engineers and developers working on advancements in robotics, to help our facilities run safely and meet our customers’ needs,” said Vice President of Amazon Robotics Joe Quinlivan in a press release.