Bear market blues? Buy Amazon now
You’ve probably had enough of the bear market by now. For many, if not most investors, this weighs on their portfolios. And it hurts the performance of even the strongest companies. But that doesn’t mean you should forget about investing. In fact, the best thing to do right now is to invest.
So what kind of business can help you shake off the bear market blues? Answer: A company that has a long track record of earnings and share price performance. And ideally, you can get this stock for a bargain. Amazon (AMZN 10.36%) corresponds to the invoice. Let’s take a closer look at why this stock is a buy right now.
A solid track record
Amazon has grown its revenue and profits over time, reaching billions of dollars. And the share price followed. It has climbed more than 160% in the past five years.
But this e-commerce and cloud computing giant has not been immune to the problems plaguing many businesses these days. Rising inflation and supply chain issues weighed on the company’s financial performance.
And there have also been problems particular to Amazon. For example, Amazon doubled its distribution network in less than two years to meet demand during parts of the pandemic. But earlier this year, the company found itself with too much capacity.
The good news is that Amazon is making progress in addressing some of these recent challenges. And the business that has been a key profit driver – Amazon Web Services (AWS) – is growing by leaps and bounds.
Dealing with the tough times
Let’s see how Amazon handles these tougher days. In the first quarter, Amazon reported $6 billion in additional costs. The company is committed to reducing these costs – and it has. In the July 28 second-quarter earnings report, Amazon said its incremental costs were $4 billion.
The company also made better use of its fulfillment network and improved staffing levels and speed of delivery. All of this has helped to stimulate demand. Excluding the foreign exchange impact, revenue grew 10% in the second quarter to more than $121 billion, beating the company’s forecast.
The second quarter showed that Amazon was successfully managing these difficult times, without getting stuck in them. (Any problems Amazon is facing are primarily in the company’s e-commerce business.)
If we look at AWS, the cloud computing company, the picture looks even brighter. The tough economic environment hasn’t hurt AWS. Indeed, this activity recorded a gain of 36% in its operating income and a 33% increase in its turnover. AWS is the global market leader in cloud computing. It has a 33% share, according to Synergy Research Group.
AWS drives growth
Above all, AWS continues to obtain new contracts. For example, at T2, Delta Airlines chose AWS for the redesign of its digital business. And AWS is expanding its infrastructure. It plans to open 24 additional Availability Zones in eight regions. Amazon chief financial officer Brian Olsavsky said on the earnings call that adoption of cloud services is still in its early stages. This means AWS can drive much more growth at Amazon in the years to come.
And the good news for investors is that shares of this innovative company are on sale now. They are trading for 65 times the earnings of the last 12 months. Two years ago, they traded for around 125, and at that time the company’s earnings were lower than they are today.
AMZN PE Ratio data by YCharts.
So what if you buy Amazon stock right now? I don’t expect an immediate recovery in earnings or stock performance. But Amazon has shown in just one quarter that it can make the changes needed to weather today’s headwinds.
I am optimistic that the company can continue on this path. Amazon’s track record shows that it has made gains over the long term. It looks like the company can do it again. And that’s exactly why it’s a stock you’ll want to buy during the bear market.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Adria Cimino holds positions at Amazon. The Motley Fool holds positions and recommends Amazon. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.