You may have owned Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN) in the past or perhaps you’ve always been on the sidelines, waiting for the opportune moment to pull the trigger on the e-commerce and cloud computing giant. Well, wait no longer, says portfolio manager John O’Connell, who just named AMZN one of his top picks for the year ahead.
With its share price now under the $100 mark, O’Connell thinks this is a no-brainer for investors.
“[Amazon] is 20 per cent bigger than it was two years ago and yet 60 per cent cheaper and its margins are about the same. If you strip out all the massive investment they’ve made, they’re better. The business is better today,” said O’Connell, CEO of Davis Rea Ltd, who spoke on BNN Bloomberg on Friday.
Amazon shares dipped below $100 at the start of November and have mostly stayed that way over intervening months, which puts the stock pretty much on par with pre-COVID levels. Put another way, Amazon has now lost all of its gains made in the early days of the pandemic when everybody and their dog went online to scratch their consumer itch.
But bricks and mortar shopping has returned and with it come poor comps for stocks like this one, where growth rates end up looking pretty insubstantial compared to the huge leaps made over 2020-2022.
Amazon released its fourth quarter and full-year 2022 financials last month, showing net sales for the year of $514.0 billion, a new record for the company but also representing a meagre nine per cent increase over 2021’s $469.8 billion. That’s the smallest year-over-year growth rate achieved by the company in decades.
More troubling, according to some investors, was management’s guidance for the first quarter 2023, which called for revenue of $121-$126 billion, representing a year-over-year improvement of just four to eight per cent.
“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” said CEO Andy Jassy in the fourth quarter press release.
But for O’Connell, Amazon is built for the long haul, where the company’s capex investments will reward investors in the years to come as AMZN continues to dominate in online commerce.
“It’s an exceptionally well run business,” he said. “These guys have continued to invest massive sums of money in building their infrastructure networks, and people are taking a short-term opinion and outlook in terms of their profitability being impacted because of the massive spending. You need to do that to be a dominant player.”
“These are long-term thinkers for long-term investors. This is a great company,” he said.