By BRIAN DEAGON
The disruption of society and business due to the coronavirus pandemic has battered the stock market, but Amazon (AMZN) is uniquely positioned to perform well despite the changes in consumer behavior. Amazon stock moved into a buy range on Tuesday.
Amazon share climbed 4%, near 2,256.80, during morning trading on the stock market today, placing the stock above the buy point of 2,186.05 in a cup base, according to MarketSmith chart analysis.
There are several reasons why. As the coronavirus pandemic grips the nation, consumers are spending time and money working from home. They're also shopping online in order to avoid crowds outdoors. Moreover, state and local authorities want consumers to remain indoors as much as possible.
The impact of the coronavirus will continue to take a toll on the global economy until it is contained. But not all markets are equally impacted.
"E-commerce is likely one of the biggest beneficiaries," Wedbush analyst Michael Pachter told Investor's Business Daily. "E-commerce is likely to see a permanent shift away from offline stores."
Amazon Stock Rises From One-Year Low
Amazon stock has climbed about 37% since hitting a one-year low on March 16. The stock's relative strength line punched to a new high on March 23, showing how its performance rates vs. the S&P 500. While the RS line has recently pulled back some, it suggests the stock could continue to act as a leader.
Prior to the Covid-19 outbreak, Amazon stock was stuck in a long phase where it moved only sideways, as investors seemed wary about big investments and market pressures facing the e-commerce giant. Those holding Amazon stock fretted over the potential negative impacts of investments on infrastructure, competitive pressures in cloud services, increased spending on its one-day shipping program and the impact that might have on profits.
The concerns seemed justified. Amazon missed profit expectations in the third quarter and provided a revenue forecast for the fourth quarter that fell short of Wall Street estimates. But when Amazon revealed its fourth-quarter results on Jan. 30, those fears washed away. The company blew past expectations, and Amazon stock hit a new high for the first time since September 2018.
Covid-19 Changed Everything
But the coronavirus has changed everything. Local and state stay-at-home orders have left a majority of the U.S. housebound. The resulting tidal wave of new demand for household and home office supplies has created bottlenecks and shortages.
In order to fulfill spiking demand, Amazon said it completed previous plans to hire 100,000 additional workers and will add another 75,000 workers on top of that, "to help meet customer demand and assist existing employees fulfilling orders for essential products." The company also increased the investment it's making to boost the salary of employees, to more than $500 million, from $350 million.
Few companies have created such a large and lengthy runway of opportunities as Amazon. It paid $13.4 billion to acquire Whole Foods Market in 2017, moving into groceries and food delivery. Amazon also continues to invest heavily in cloud computing, transportation, video content and online video services, competing against Netflix (NFLX) and others. And it leads the market in smart speakers with its line of products called Echo.
Founded as a simple online bookstore in 1994, Amazon never seemed to rest on its laurels and eventually became the leading provider of e-commerce services. The company is known for making bold moves and leaving competitors with the jitters when it does.
An example of that is Amazon's announcement that it would offer free one-day shipping to its best customers. Amazon, which announced its one-day shipping plan last year, initially committed to spending $800 million on the program. Management later indicated that they expect to spend another $1.5 billion. For now, however, consumers are waiting weeks for some goods to arrive.
Amazon Carves Out New Markets
Among its bold moves into new markets, Amazon is merging into the transportation field. Amazon is a big investor in Rivian, pumping $700 million into the electric truck maker one year ago. Amazon Chief Executive Jeff Bezos said the company had placed an order for 100,000 electric delivery vans from Rivian, a Michigan-based startup. It was also among the investors in a $530 million funding round for self-driving auto startup Aurora Innovation.
Amazon also is exploring the health care market, having acquired online pharmacy company PillPack last year for just under $1 billion.
Not all of its ventures succeed. But many agree it's willing to take bold steps that sometimes turn into big winners.
Among its biggest success stories is Amazon Web Services. AWS is the market leader in cloud-based computing services and is highly profitable. It now accounts for about 12% of company revenue.
AWS reported fourth-quarter revenue of $9.95 billion, up 34% and above estimates of $9.62 billion. Customers range from startup companies to large enterprises, government entities and nonprofits.
Amazon faces heightened competition in cloud computing from Microsoft (MSFT), Alphabet's (GOOGL) Google and IBM (IBM).
Amazon Fundamental Analysis: Double-Digit Growth
Even with revenue of $280 billion in 2019 — ahead of Wall Street forecasts, by the way — Amazon has maintained its double-digit revenue growth for years. To that point, revenue in 2019 climbed 20% from the previous year.
For its fourth quarter, the company reported adjusted earnings were $6.47, beating estimates of $4.05. Revenue jumped 21% to $87.4 billion, vs. estimates of $86 billion.
Amazon results reflected accelerating revenue growth due to the expansion of one-day shipping while ongoing investments in the program contributed to a contraction of operating margin.
Amazon Stock Analysis
A fundamental analysis of Amazon stock is a key component of determining whether it's worth buying.
The IBD Stock Checkup Tool shows that Amazon stock currently has a strong IBD Composite Rating of 99 out of a best-possible 99. The rating means Amazon stock currently outperforms 96% of all stocks in terms of the most important fundamental and technical stock-picking criteria.
It also has a Relative Strength Rating of 94, which measures a stock's price performance over the last 12 months against that of all other stocks.
What makes Amazon an appropriate candidate to watch is its relative strength line. The relative strength line measures a stock's price performance vs. the S&P 500. Typically, the RS line of the strongest stocks is either confirming or leading a stock's price into new high ground.
The company currently holds the No. 1 spot among its peers in IBD's Retail/Internet industry group. JD.com (JD) is No. 2, followed by Alibaba Group (BABA).
Is Amazon Stock A Buy Right Now?
Amazon stock is currently a buy, with the buy range extending to 2,295.35. The stock moved above its 50-day moving average on Monday, a positive sign.
Amazon also is one of the exclusive FAANG stocks. Along with Facebook (FB), Apple (AAPL), Netflix and Google, Amazon draws the attention of investors.
When looking for the best stocks to buy and watch, focus on those with rising relative price strength.
Buying stocks in a bear market comes with a high risk. It's wise for investors to place well-performing stocks on their watchlist for further evaluation.