Buy Amazon on the pullback, this investor says

Call it a correction, a pullback or a sector rotation, the big American tech stocks have been hammered lately, which is bad news for a stock like Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN). But Rich Stuchberry says investors need to see beyond the headlines and take a look at the company itself, which in Amazon’s case is a thing of beauty.

“[Amazon] looks much higher and it’s going to go back. Where else can you get the growth rate and where else can you get that kind of clean balance sheet? And looking forward it seems to be able to adapt and move even though it’s a huge company,” said Stuchberry of Wellington-Altus Private Wealth, speaking on BNN Bloomberg on Monday where he nominated Amazon as one of his three Top Picks for the 12 months ahead.

Stocks went on a bit of a ride on Monday with the market dipping midday before rallying to close fairly even. The S&P 500 Index finished up just eight points, the S&P/TSX Composite Index ended down slightly while the tech-heavy NASDAQ ended 86 points to the upside at 13,855. It’s been rough all around but tech stocks have been watched especially closely, with the general idea being that rising interest rates in 2022 will reflect poorly on growth names such as those in the FAANG group and surrounding companies. 

Since the start of January, the overall NASDAQ is now down about 12.5 per cent for January, whereas Apple is down nine per cent, Facebook is down eight per cent and Alphabet is down almost ten per cent. 

For its part, Amazon is down 13 per cent and that comes at a time when investors were hoping for the stock to pull out of its long-standing doldrums — AMZN zoomed ahead early in the pandemic as the market took to the e-commerce stock as a no-brainer COVID play. But between August 2020 and the end of 2021 the stock did little but bounce around between $3,000 and $3,600 per share. November looked to be the start of an upswing but December and now January have fared not so well, with Amazon now down almost 18 per cent since the start of December.

But Stuchberry says investors should be considering Amazon a buy at these reduced prices.

“Look at the correction we’ve had in the last couple of weeks. You know, if you said two months ago Amazon’s going to drop the way it has they’d probably put you in the insane asylum. But the market is bigger than any stock and what we like about Amazon is look at the growth rates. And people forget about Amazon Web Services which we think is a sweet part of the pie,” he said. 

“Much like Apple did ten, 15 years ago, 15 years ago, when Apple was ‘overpriced’ at $10 and $100 and $500, Amazon always seems to be overpriced but it grows into it. And that’s one of the reasons that we think on this dip that if you don’t have any you should maybe think of layering into some Amazon over the next little bit here,” Stuchberry said.

All eyes will be on Amazon’s fourth quarter due on February 1, with hopes of something better than its third quarter in October where the results came in below expectations. Amazon hit $110.81 billion in revenue billion in net sales, up from $96.15 billion a year earlier, and earnings were $6.12 per share compared to $12.37 per share a year earlier. It was an admittedly tough year-over-year comparison, as the previous Q3 was in the earlier days of the pandemic when shopping was still mostly online versus today where more jurisdictions have re-opened bricks and mortar stores.

Still, the results were under analysts’ consensus calls for revenue of $111.6 billion and $8.92 per share in earnings. Amazon’s guidance was also underwhelming, with management calling for fourth quarter revenue of between $130 and $140 billion compared to the consensus expectation of $142.1 billion.

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter—and you can see that during every phase of this pandemic,” said Andy Jassy, Amazon CEO, in the company’s third quarter 2021 press release.

By segment, Amazon is still seeing the bulk of its business in North America at $65.6 billion in net sales for the third quarter compared to International sales at $29.1 billion (AWS brought in $16.1 billion). 

But as far as competition goes on the international scale, Stuchberry sees Amazon as standing fairly alone, especially since its main Chinese competitor, Alibaba, has been attacked on a number of fronts by the Chinese government, including an antitrust investigation against Alibaba and a crackdown on the company over cybersecurity concerns. Investors have pulled away from Alibaba and similar stocks on Western exchanges also due to concerns over a potential delisting forced by Beijing. 

“Alibaba would be [a competitor to Amazon] but the Chinese Communist government has put their thumb on the top of their heads and slowed them down,” Stuchberry said. “But Amazon looks really solid and it’s well run. It’s a good company.”