After the trade session on June 13, 2022, statistics from the S&P 500 indicated that the index has officially entered into a bear market. Its fall of over 20% from its recent high in January this year is what signified this categorization. The news understandably sent alarm bells ringing across the wider stock market. The US continues to battle inflation levels it had not faced in the last 40 years. Due to these circumstances, investor confidence for many remains at an all-time low. Renowned stocks of market giants have taken an even harder hit; Amazon Inc (AMZN) had fallen by a staggering 40% in the last six months alone. In comparison, the S&P 500, during this time, fell only by 21%.
Despite AMZN facing the ever-increasing pressure of the wider macroeconomic environment, I do not think it’s all doom and gloom for the global e-commerce leader. Yes, there is no doubt that the prevalent dip is concerning for those that have a substantial portion of their capital invested in the stock. However, stock plummets are not losses that are realized, and shareholders do have quite some optimism to hold on to. Amazon stock still stands at over double its price seen 5 years ago. I believe the growth engine, despite its current slowdown, is not going to yield to the challenges faced. This is especially true in terms of its long-term outlook.
For those seeking a long-term stock to hold for the next 15 years, there is no better option presently than AMZN. The reasons for this are elaborated on below:
Amazon’s Undisputed Market Position
Few companies dominate the domains of their given market space as aggressively as Amazon does. This has led many to refer to the company as being a tech monopoly, eliminating all barriers to entry of emerging competitors.
Amazon has become a household name in the United States, and increasingly in many other parts of the world. The brand image it has established across its various markets gives Amazon significant customer preference. This comes as a result of hassle-free return policies, overnight shipping, and a sea of product variety to browse through. To top it all up, its platform’s smooth user experience and positive reviews act as the cherry on top.
Yesterday, on June 14, 2022, the company announced its plans to finally kick off its nine-year-long Prime Air drone program, by the end of the year. This would challenge the drone delivery system of both Google and Walmart.
In addition to the innovation that Amazon is committed to, the plan also points to another aspect of the company’s strategy. The move aims to drive down costs through the elimination of labor and heavy transport costs. The company fully exploits a cost leadership strategy which makes it highly competitive against any domestic or national competitor. This aspect alone gives the company a significant edge over other businesses in the present macroeconomic slowdown. It continues to use innovation, as well as economies of scale to further drive down its prices and remain the undisputed e-commerce cost leader. It is precisely the strength of this strategic approach that makes the stock ideal to hold and never sell, despite what the wider market may suggest.
Dynamic Growth Anticipation
A major reason why Amazon is the go-to stock to include in your portfolio for the next 15 years, is due to its innovative strategy to prioritize high-growth areas, which are in line with its broader vision. Take its digital cloud services segment, which grew by a whopping 37% in FY22Q1, on a year-on-year basis. Its operating income from Web Services delivered an impressive $6.5 billion to the company. This was significantly above what analysts had expected for the company, which was $5.6 billion.
Amazon’s success in meeting the demand for cloud storage and computing services indicates how its large size and stellar balance sheet allow it to dynamically reposition itself. Through this, the company stands in a position to keep its growth momentum from slowing down in the long-term period. It excels in understanding the broader environment within which it operates, and identifying profitable growth opportunities within them. Its access to substantial amounts of financing, as well as its mammoth scale of operations, enables it to actualize opportunities.
The market may be entering into a bear mode, however, Amazon and its anticipated dynamic growth opportunities remain highly promising. For this reason, I believe that even the scares of a recession would not really impact its financial sustainability.
AMZN Stock Presently Holds Significant Opportunity
One outcome of the present bear market scenario is that large stocks are trading significantly below their values of a mere months ago. This is also true for AMZN, which has fallen quite a bit in the last few months. The degree of its undervaluation can be gauged by its PE ratio declined in the last 5 years:
For a stock with strong long-term prospects, these conditions indicate a strong opportunity to buy the stock now. Doing this would allow traders to enjoy the climb throughout the next decade and beyond.
The recent decision of the company to initiate a 1-for-20 stock split, further adds to AMZN’s opportunity factor. The decision brought down the price from about $2450 down to about $120. The split makes the stock much more accessible to financial market participants. Given the present macroeconomic challenges, the move also allows investors to gradually up their ownership of Amazon stock with time. By doing this, they would face more exposure to the long-term growth ride it is sure to embark upon.
These stock metrics paint an ideal picture for investors. This is especially true when considering its terrific cost leadership strategy, and its foot in some of the most profitable tech segments
There is plenty to discuss how promising Amazon’s outlook appears to be in the next 15 years. Its strong competitive position, coupled with its gigantic scale of operation makes it highly unlikely for any player to dethrone this tech king. Its cost leadership, which rests on its economies of scale, and innovation-driven approach, would seriously limit the adverse impact of a possible recession on its financial performance. With AMZN’s dynamic growth in high-promise tech areas, there really are few investment options with as much upside potential, like Amazon.