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Tech Stocks Tune-Up — 2 to Buy, 3 to Sell

With the Nasdaq above 3,000, how long can techs keep this up?

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Tech to Sell: Amazon

Amazon AMZNAmazon (NASDAQ:AMZN) is a perennial outperformer. Shares have more than doubled since pre-Lehman levels, and the company has reshaped e-commerce and the publishing industry as we know it.

But a forward P/E of 65 based on projected 2013 earnings of $2.86? That seems a bit rich — especially when you consider Amazon’s net profit is normally about 5% of revenue, thanks to rock-bottom pricing that’s squeezing competitors and giving AMZN its low-cost appeal.

The company actually is going to come dangerously close to break-even in its next earnings report because of the huge Kindle Fire gamble. The company is bleeding cash on the low-cost tablets in an effort to jump into the iPad-dominated market. Amazon’s research, production and subsidies for the tablet already resulted in a huge step back for fourth-quarter earnings and remain a drag on the bottom line.

Will the move pay off in the long run? Maybe. But in the short term, Amazon’s lack of transparency on Kindle sales figures should make some investors leery. In fact, one group of analysts said last year that the Kindle Fire actually will boost iPad sales by familiarizing consumers with the technology and prompting them to eventually upgrade.

And now that an entry-level iPad 2 is just $399? The leap is easier to make then ever.

As with Microsoft, general economic recovery will bode well for AMZN via its e-commerce business. But if you’re expecting a quick rebound back to valuations near $250 a share … well, it’s not happening anytime soon. Rotate out of this tech giant and into other opportunities that have equal upside and less uncertainty.

Article printed from InvestorPlace Media,

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