Here’s why Amazon stock is a buy

It’s been quite the waiting game with Amazon (Amazon Stock Quote, Charts, News, Analysts, Financials NASDAQ:AMZN), whose share price had been stuck at pre-pandemic levels for a while. But with a nice lift in the stock so far in 2023, investors are likely wondering if there’s more upside to come.

Plenty, says portfolio manager Gordon Reid, who thinks the market will sooner or later come around and Amazon will go higher.

“Amazon, of course, has been punished for over-investing during the pandemic when e-commerce was just going crazy and they spent billions of dollars and hired hundreds of thousands of people to man fulfillment centres that really weren’t needed and that just completely crushed margins,” said Reid, president of Goodreid Investment Counsel, who on a Tuesday BNN Bloomberg segment nominated Amazon as one of his Top Picks for the 12 months ahead.

Reid estimates that Amazon’s cloud computing business, Amazon Web Services (AWS), is itself as valuable as where the current share price is currently trading, meaning that investors are basically getting the whole of the e-commerce business — and Amazon is the world’s largest in that department — for free.

“Amazon isn’t getting any love, but at $110 a share, we believe that AWS, which has continued to do extremely well, is worth that. So you’re really not paying much if anything for the e-commerce business. There’s opportunity there,” he said.

Looking at Amazon’s 2022 year, the company had $80.1 billion in AWS sales compared to $62.2 billion for 2021 for a growth rate of 29 per cent, while sales in its retail business were $433.9 billion in 2022 versus $407.6 billion in 2021 for a smaller growth rate of six per cent. 

Reid said Amazon’s retail business is starting to grow and benefit from investments made by the company in recent years, with margins and profits expected to head north.

“We think this company, which is today making $1.40-$1.50 a share can by mid-decade, make $5 a share,” he said. “And then the kicker is that these this is a technology company that’s investing tens of billions of dollars in cutting edge technology, including AI. It’s hard to think that there’s not an opportunity there.”

“So we believe that this is this is one you just buy and wait on. You let them get their ducks in the row and the fundamentals will push the stock price higher,” he said.