Retailing hasn’t exactly been the sweet spot of this market for the last several years. However, one retailer that remains in a unique position to thrive both in the near and long term is Amazon (AMZN), asserts Chuck Carlson, income expert and editor of DRIP Investor.
Indeed, the retailing giant’s online business model continues to show its strength. The stock has held up relatively well during the recent market downdraft. It is possible that consumer spending will be severely hobbled over the next six months, which will matter to all retailers, including Amazon.
But from a stock perspective, I expect these shares to continue to show good resilience relative to the market. Though not cheap based on traditional valuation metrics, the shares have become a “must have” for growth investors. And due to the recent implementation of a direct-purchase plan, Amazon shares are accessible for virtually any investor, regardless of the size of his or her pocketbook.
While it seems like it has been around forever, Amazon is still a relatively young company. The firm, incorporated in 1994, started out as an online marketplace for selling books. Over the years, the company has grown into a global retailing and services juggernaut, focusing on ecommerce of all kinds, cloud computing via its Amazon Web Services (AWS) business, and digital streaming.
Sales in the company’s most recent quarter totaled $87.4 billion, up nearly 21% over the year-earlier quarter. The firm now has over 150 million paid Prime members around the world, a very nice annuity-type cash stream.
The company’s reach provides it with a plethora of opportunities. In fact, founder Jeff Bezos has said that “your margin is my opportunity,” implying that Amazon has the ability to disrupt virtually any industry. So what are the biggest risks to Amazon?
➤ Regulators. This is probably the company’s biggest operating risk. Will regulators at some point determine that Amazon is too powerful and has too much sway over the economy and is stifl ing competition? And what would a remedy look like? From purely a pricing standpoint, it would be hard to argue that Amazon’s “monopolistic” practices are keeping prices high. In fact, the presence of Amazon has probably had signifi cant downward pressure on prices.
➤ The Law of large numbers. Amazon’s sales will probably exceed $325 billion this year. The challenge is to keep posting double-digit growth on an already huge base.
For many investors, buying a stock trading at nearly $2,000 is impossible. If you use a broker, you’ll need a hefty chunk of change just to buy a whole share.
The good news is that Amazon’s direct-purchase plan lets you get started with a minimum initial investment of just $250, and subsequent investments can be as little as $20. I would feel very comfortable initiating a position in Amazon shares at current prices and stepping up buying on weakness to the $1700 level.
