Five Investments to Own in 2018: #4 AMZN

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In our last installment of Five Investments to Own in 2018, we told you how we thought that energy – and price of oil — was likely headed higher in 2018. And we also told you about a great way to play it.

If you missed it, take some time to give it a look.

Our energy play followed our first and second picks that deserve your attention in 2018. Those picks included a broad market and precious metal ETF (Exchange Traded Fund).

Now, we turn our attention to the fourth in our series. And this time we take a gander at one the greatest companies out there, Amazon (AMZN).

Amazon: It’s Worth Every Penny

When it comes to a growth company that’s at the forefront of innovation, you don’t have to look much further than Amazon. Its brand is one of the most recognizable on the planet. And from its humble beginnings in 1995 as an online bookseller, it’s grown into a company with few rivals.

Some numbers …

During the third quarter, net sales were $44 billion, up an astonishing 34% increase from the year-ago quarter’s $33 billion. Strip away the acquisition of Whole Foods and foreign exchange impacts, and sales were still up 29%.

It wasn’t just the consolidated sales numbers that impressed: Every division in Amazon scored excellent sales results: North America up 35%, International up 29%, and Amazon Web Services (AWS) up 42%.

Plus, during the third quarter …

  • Amazon acquired Whole Foods and immediately lowered prices.
  • The company introduced three new Echo devices, the Fire TV with 4K Ultra HD, and Alexa far-field voice control of Fire TV.
  • Along with Microsoft, the companies announced that soon Alexa and Cortana will be able to talk to each other.
  • Amazon Studio closed deals with The Walking Dead creator Robert Kirkman and Gilmore Girls creators Amy Sherman-Palladino and Daniel Palladino. The studio also gave the go-ahead for a comedy and drama series.
  • AWS was named the preferred cloud provider for General Electric and announced a number of key customers, including Toyota Racing Development, Hulu, and FICO.

I could go on, but you get the point: Amazon’s sales drivers are firing on all cylinders.

Drilling down to profits, the company is certainly in growth mode: Margins are thin, both from an operating and bottom-line standpoint. And that’s true for the third quarter.

But that’s a good thing. It means the company retains a ton of its operating capital and plows it back into expansion. That in turn should reflect a higher stock price. And that’s exactly what we see …

AMZN Burritt Research Financial Writing

As you can see from this chart, Amazon’s growth strategy has paid off in higher share prices. That’s how growth companies work and more than justifies higher valuations ratios, like price-to-earnings.

The outlook is even stronger. Sales are expected to grow between 28% and 38% for the fourth quarter. There are currently 39 analyst buy recommendations out of 48. And an average price target is just shy of $1,300. But if you mix in the fundamentals and momentum behind the above chart, I think that could be just the beginning.

That’s it for now. If you haven’t already done so, sign up for our Investor Insights mailing list. It doesn’t cost a penny and we’ll deliver these issues right to your inbox.

Happy Investing,

Wayne

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