With the current market volatility making it difficult to gauge where equities are headed, it might be best for investors to turn to a longer-range view for guidance. On that basis, portfolio manager Brendan Caldwell thinks you’ll want to own e-commerce giant Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN), since the macro view seems to include lots more online shopping for all of us.
“I think Amazon is going to continue to do well because if you asked me what the world will look like in five, ten years from now and are people going to be buying more in-retail — are they going to go to the retail store more or are they going to get even more home delivery,” said Caldwell, president and CEO of Caldwell Investment Management, who spoke on BNN Bloomberg on Wednesday.
“We’ve seen an acceleration in a trend, and yes, some buying has been brought forward, but I think over the next number of years, people are going to have more and more delivered without going out to the store to get it,” he said.
Over the first stretch of the pandemic, Amazon was a winner of a stock to own, as it was for many years previous, but the market cooled on pandemic and stay-and-work-from-home names and that put AMZN on hold for much of the past year and a half. There seemed to be a little momentum heading into November last year when Amazon traded close to the $3,700 mark but starting mid-November a general market rotation away from growth stocks pulled the stock briefly below $2,800 before the more recent rally which has taken Amazon right back to where it’s been since August 2020, around the $3,300 price range.
Quarterly financials appear to have little impact one way or the other, either. Amazon missed earnings and revenue estimates with its third quarter 2021 report, delivered in late October, but the stock went on to post solid gains over the next couple of weeks, while more recently, the company’s fourth quarter numbers were excellent, with blowout earnings per share, but after a brief spike upwards AMZN started heading south once again.
Perhaps the latest rally, seemingly sparked by the announcement of a 20-for-one stock split along with a proposed $10-billion share buy-back plan, will be more long-lived. Since March 9, the stock is now up about 18 per cent.
Caldwell says those investors thinking about Amazon might want to get in sooner rather than later.
“If you’re really looking to buy Amazon, I would do it before the stock split,” Caldwell said. “On a stock consolidation where a company takes ten shares and makes it one, the stock almost invariably goes back to where it was before the consolidation, so it almost always goes down.”
“On a stock split, not always but more often than not, the stock goes up, maybe not back to the same level it was in absolute dollars,” he said.
Caldwell said some of the lustre has come off the big American tech names like Amazon, Facebook and the like. Where once these stocks were fairly safe bets even in times of market volatility, their place and weighting within peoples’ portfolios has definitely been put into question over the past half-year or more.
“Over the last number of years, we’ve talked about the FAANG stocks in the market — Facebook, Amazon, Apple, Netflix and Google — but I don’t think we’re going to see that acronym anymore. Facebook is now Meta, so I guess we have a ‘MAANG’ [but] some of these stocks are going to do better and I think some are going to do worse,” he said.
Perhaps a sign of the times, earlier this week the first Sell-equivalent rating on AMZN in over two years from Wall Street analysts came from BNP Paribas Exane. Analyst Stefan Slowinski put a 12-month target of $2,800 on the stock, saying in an initiation report that the company’s profit margins will suffer due to capex spending and inflation and that no identifiable catalysts are on the horizon.
“The stock has been underperforming big tech peers and we expect that to continue,” said Slowinski to Bloomberg News on March 30.
On the proposed stock split and share buy-back, Slowinski said they shouldn’t be taken as positives either.
“With the US$10 billion buyback less than 1 per cent of its market cap, it’s really not a signal of confidence from the company,” Slowinski said by phone. “And we don’t believe it shows the willingness to drive shareholder value in the near term.”