Where’s the next Amazon coming from? This portfolio manager weighs in

If there’s one thing to be said about the tech sector it’s that technology has its shares of shooting stars, many of whom dazzle for a brief flash before fizzing out all too soon. But there’s also that category of stocks with longevity in their genes, ones that have withstood the test of time and end up working their way not only into our common parlance on investing in innovation but into the very fabric of the modern world. 

Even in that longstanding group, though, you have your winners and, if not pure losers, ones whose paths pale by comparison. On the left side of the page you have your high-growth names like Microsoft, Google and Facebook, with the big daddy of them all in terms of returns over the years being Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN). While on the right you’ve got, say, your IBMs, Ciscos and Intels, stocks that may have provided investors with a modicum of success over the past two decades following the dot-com collapse but are by no means delivering doubles and triples on a regular basis. 

Of course, the eternal challenge is in picking the next Amazon among would-be contenders, and on that mark portfolio manager Larry Berman of ETF Capital Management says EV carmaker Tesla (Tesla Stock Quote, Charts, News, Analysts, Financials NASDAQ:TSLA), even with all its unworldly gains in recent years, may have the makings of a new Amazon, a stock that’ll reward investors for years to come.

Berman, who hosts a weekly investing webinar called the Investor’s Guide to Thriving, spoke on a BNN Bloomberg segment on Monday, saying Tesla stock is not cheap but may be worth it in the long run.

“We’re going to have a look [on this week’s webinar] at disruptive technologies and the idea of investing for the next five, ten, 15, 20 years in some of these areas. And of the names that might be standouts Tesla comes to mind,” said Berman, founder and chief investment officer at ETF Capital.

“I’d be willing to bet ten years from now that Tesla’s lower than it is today, but I’m not sure. I think Tesla is an early out-of-the-gate innovator, no doubt in my mind, but you’re paying a colossal amount of money for the stock today,” he said.

Tesla was down in trading on Monday but the stock’s torrid pace over the past two years has been a sight to behold, with the company now seemingly casting aside those early doubts as to whether it has the right stuff to compete in the tough auto sector. The company posted $1.62 billion in net income for its most recent quarter, showing that profitability is possible in the space and giving the market apparently enough positive news to juice the stock past the $1,000 per share mark. That has put TSLA up 65 per cent year-to-date and up an incredible 1,500 per cent over the past two years.

That’s much better than Amazon, which benefitted from early enthusiasm in the e-commerce boom during the pandemic but has been relatively flat since the summer of 2020. Still, AMZN’s return for the past 24 months has been about 100 per cent, but the real magic comes from the longer scale. The ten-year return is over 1,900 per cent and the 20-year is almost 250x.

Berman compares Amazon with Cisco and Intel, two other companies that survived the dot-com crash.

“The best stock by far in the last 20 years of the big-cap name stocks is Amazon,” Berman said. “In the last few years of the 1990s Amazon ran up from a couple of dollars to $100 and then when the tech bubble burst, Amazon fell a little over 94 per cent.”

“There’s not an investor on the planet who can, even liking that story, sit through a 90-plus per cent decline, let alone a 50 or 60 per cent decline in the stock,” he said. “Amazon today still doesn’t make a whole lot of money in terms of what they do and it’s a very different company today with their web services and the food store that they bought compared to being a bookseller and a retailer. They still don’t make any money in retailing stuff these days.

“Then you look at the other two big names of the day and these were the building blocks of the Internet and the whole technology revolution — Intel and Cisco,” Berman said. “And Intel corrected about 90 per cent from its peak in 2000 and today it’s still not above that peak. It’s the same chart for Cisco, right? You look at Cisco and you say [in the 1990s], Wow, incredible story. An 80 plus percent correction and today it’s still not higher than it was in 2000.”