The coronavirus panic has most of the economy in a deep freeze.
Brick-and-mortar retail stores are getting hammered. (The U.S. Commerce Department says retail sales for March fell a seasonally adjusted 8.7% — the biggest one-month decline since it started keeping records in 1992.)
We’re seeing other stressors in the food supply chain.
Unemployment is spiking.
This spiraling storm is changing the corporate landscape, is widening the gap between the winners and losers, and is changing the opportunity matrix for investors.
And the COVID-19 pandemic is transforming one heavyweight into an absolute juggernaut.
I’m talking about Amazon.com Inc. (NASDAQ: AMZN), the King of E-Commerce, which has become the essential retailing icon of the pandemic.
Today I’m here to make a prediction.
And to answer a question.
Amazon is currently trading at about $2,350 a share.
That’s more than five times where it was five years ago – a fact that has lots of investors asking: “Is it too late to buy Amazon?”
In fact, I’m predicting we’ll eventually see Amazon at $3,000 a share as a result of the market and mindshare gains the company has made during this crisis. And the stock will move higher from there.
Today I’m going to show you why…
Responding to the Times
I think it’s safe to say that Amazon is an elite company – and an elite stock. It boasts a market cap of nearly $1.2 trillion.
More to the point, it has performed better in this market than two other $1 trillion market value companies. Both Microsoft Corp. (NASDAQ: MSFT), valued at $1.3 trillion, and Apple Inc. (NASDAQ: AAPL), valued at $1.2 trillion, remain off their recent highs.
Amazon recently hit a closing high of $2,400. The bellwether Standard & Poor’s 500 Index closed at just about breakeven that same day, by contrast, and on that same day was still down off just shy of 18% since hitting its high on Feb. 19.
And it’s not just its other high-tech peers that Amazon is besting.
It’s also taking it to its brick-and-mortar rivals.
- Electronics retailer Best Buy Co. Inc. (NYSE: BBY) is laying off 51,000 hourly workers. The retailer had limited sales to delivery and curbside pickup only.
- Amazon plans to hire another 75,000 workers – a recruitment effort in addition to the 100,000 the company already hired to meet surging demand for online sales during the coronavirus lockdown.
- Retailers in parts of the United States have been forced to stop selling nonessential items in their stores.
- There are even reports that unions, government officials, and some other opinion leaders are starting to push for grocery stores to ban customers from coming inside – an unlikely scenario that would force food retailers to convert to curbside pickup, too.
The Endless Drive for Growth
Amazon’s high-ground claim in cyberspace is a big reason for its competitive advantage.
However, let’s not overlook the fact that visionary CEO Jeff Bezos just never quits looking for ways to add more growth that will keep revenue rising – even as the company grabs more market share.
Here are four examples of just what I’m talking about.
- In February 2019, Amazon was the lead investor in electric-truck maker Rivian.
- It was also among the lead investors in a recent $530 million financing for Aurora Innovation, a self-driving auto startup.
- Two years ago, it invested nearly $1 billion for PillPack, moving into the online pharmacy business.
- And it’s planning to launch a constellation of 3,236 satellites to provide broadband coverage to much of the world.
Those kinds of deals won’t have the immediate “impact” that the $13.4 billion buyout of Whole Foods had back in 2017. But there still could be a nice payoff down the road.
And some of the smaller, under-the-radar deals Bezos has made.
But it’s the quiet moves that have often made a future impact.
Look at the breakthrough achieved back in September 1997, when Bezos filed a patent claim on the 1-Click feature. Even after some controversy – which led to a challenge and subsequent four-year patent review in the late 2000s – that innovation has turned into a “one-up the competition” feature that’s worth billions in additional revenue and tens of millions in annual profits each and every year.
Today, there are literally hundreds of thousands of goods you can buy through the portal. And Bezos was savvy in the way he kept adding more third-party merchants who could sell through the store.
Consider that Amazon now has more than 2 million vendors who use its storefront. Of those, some 100,000 each sold $100,000 worth of goods in 2018 alone. That’s a total of $10 billion in gross sales for only the top 5% of those third-party sellers.
Let’s not forget the firm’s Amazon Web Services (AWS). Launched back in 2002 as a way for Amazon to make incremental use of its racks and racks of servers, it’s since become the bulked-up industry leader.
Last year, cloud sales hit $35 billion. That’s more than 10 times its revenue of 2013.
Amazon has moved into “smart speakers” with Alexa – considered the state of the art in artificial intelligence-driven “assistant” speaker systems.
The firm also has jumped into online streaming. It has competitive offerings in both music and on-demand video – and is even producing original content, with productions garnering three Oscars.
Meanwhile, the company is a marvel of logistics. It has invested billions in cutting-edge robotics, software, and automation, not to mention having its own fleet of delivery vehicles.
This is why Prime members can now get same-day delivery for hundreds of products.
My Prediction for Amazon’s Shares
Over the past three years, Amazon has grown its earnings per share by roughly 107%.
On a run-rate basis, we’re talking about profits doubling roughly every nine months.
But let’s take a more conservative approach and cut that figure back by two-thirds.
We’d still see the earnings per share doubling in just over two years. Even if we double the period to be extra conservative, we’re looking at 100% gains in less than five years.
From the recent trading price of $2,350, that would take Amazon’s shares to nearly $5,000 each.
But my $3,000-a-share prediction only requires the stock to advance about 28%.
Now you see why I’m so confident in my “Buy” call and target price for the “King of E-Commerce.”
In other words, this mega-cap stock is the kind you can count on for the long haul. That makes it a “must own” foundational holding for today’s rocky markets.
— Michael A. Robinson