As we head into the new year, Big Tech firms have shifted into large layoffs to deal with rising costs; one of the bigger names that brought attention to the layoff trend is e-tailer Amazon (AMZN), a Top Pick for 2023, observes Matthew Timpane, editor at Schaeffer's Investment Research.
Following a long downtrend, Amazon stock has recently found stable support near its 2019 lows in the high $80 range. The security is also holding the -50% year-to-date level, which presents a discount opportunity for AMZN buyers, especially as the company stands as a top member of the cloud services industry.
Inflation has hit Jeff Bezos’ mega-cap name especially hard due to currency headwinds, with the U.S. dollar rising as the company’s European revenues fell. In addition, the expansion of operating expenses has weighed on Amazon shares. In simpler terms, any incoming inflation relief in the near future could boost profits substantially.
The company is also slashing capital expenditures (CapEx) to increase the free cash flow (CF) and enhance profitability in the second half of 2022. This may continue into 2023, and given a higher CF/CapEx ratio, could fund the acquisition of new, longer-term assets.
In fact, the stock’s price/sales ratio is declining, and nearing 1.66. When the ratio sat near this level in the past, which was from 2014 to 2015, it laid out a tremendous buying opportunity in the long-term.
Even further, despite a looming recession, the company said it’s expecting a +10% revenue increase in 2022. A broader look shows the tech giant’s Amazon Web Services (AWS) model is expected to grow 27% year-over-year, over the next five years.
It also does not come as a surprise that the security is a market leader in e-commerce and cloud infrastructure (as mentioned above), by 37.8% and 34%, respectively. In other words, this leadership pushes AMZN above and beyond any incoming competition.
Moving into technical analysis, our Schaeffer's Volatility Scorecard (SVS) is a lagging indicator that measures a stock's realized volatility against the volatility expectations priced into that equity’s options over the past year. Schaeffer's Investment Research's goal is to find which stocks have been the best — and worst — for premium buyers.
The SVS can be a very useful tool for premium sellers too, as “the worst” for a premium buyer can be construed as “the best” for a premium seller. Currently, Amazon stock sports an SVS of 88 out of a possible 100, indicating the security tends to outperform said expectations — a boon for buyers.