Perry's Pick: Amazon

09/23/2005 12:00 am EST

Focus:

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

The Tactical Trader, from Bryan Perry, is meant for more sophisticated traders looking for short-term profit opportunities that may last for just a few weeks. Here, he looks at Amazon, which he feels will benefit as high gas prices "drive" consumers to online shopping.

"With the volatile mix of Iraq, Katrina, spiking energy prices, Fed policy, end-of-the-quarter window-dressing and, potentially, Hurricane Rita, trading the current market requires quick thinking and a cool head. We're in a tricky market right now, so stock-picking is at a premium. However, with all the attention on the current headlines, few people are talking about a sector that will soon become the topic of choice I'm talking about retail. The start of the holiday shopping season is about a month away. Therefore, I believe it's a good time to pick a winner in the retail space that stands to do best in the current consumer environment.

"What I'm ‘driving’ at here is that, with gas at $3 per gallon, people are going to do ‘less driving’ to do their shopping this holiday season. The winners will be the online retailers. I have no doubt that the online retailers stand to take a meaningful slice of market share this year from the brick-and-mortar shopping format as consumers leverage their shopping dollars over the Web and not at the pump. And one name jumped off the pages, with a score about as strong as a stock can have when forecasting near-term business conditions.

"I'm recommending Amazon.com (AMZN NASDAQ). I like the stock for a number of reasons. First, they are the purest play in the online shopping sector, which was proven by their most recent results from the second quarter. The company posted earnings that beat a consensus of 16 Wall Street analysts by 20%. This prompted five analysts to revise their estimates higher. Amazon is also a seasonal play on the busiest period of shopping of the year, and there is always a rotational shift into the retailers going into the fourth quarter.

"I also like the fact that more than 12% of Amazon's float is short, which could spur a nice short squeeze if the stock gets back up to its recent high of $47. Technically speaking, we couldn't ask for a more bullish chart. There is downside risk to $40, but I think it will hold its 50-day moving average at $42.30, or just under. My price target for the stock is $55 for a projected return of 28% by the time the Super Bowl comes around. Option traders should buy the AMZN Jan 37.50 Calls, currently offered at $7 per contract. If shares of Amazon hit $55, then the calls will be worth at least $17.50 for a projected gain of 150%. Ho! Ho! Ho!"

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