As if SAC Capital doesn’t have enough to worry about right now, its $235 million position in Amazon (AMZN) — the fund’s second-biggest holding — is suspiciously weakening while the rest of the market has rallied to new highs.
Yes, this is the same SAC Capital that’s been implicated in an insider trading investigation of nine current or former employees, four of which have already plead guilty.
That’s an academic detail as far as the portfolio is concerned, though. Investors with money being managed by SAC might want to contemplate the fact that Amazon is no longer getting the huge berth the market had been giving it when the promise of future growth was enough to make a frothy P/E irrelevant.
Truth be told, the market tolerated swelling capital expenditures from Amazon for more than a decade, largely because the top and bottom lines were increasing the whole time. After two years of shrinking income though, traders are understandably starting to wonder if AMZN is out of opportunities to simply buy growth and produce a positive ROI.
Fans and followers will point out that Amazon is projected to grow per-share income from 2012’s 9-cent loss to a gain of $1.32 this year and $3.31 next year. But that presumes the company won’t find a new project to justify a huge capex next year. If it actually does cut back on capital spending, it would be the first time in more than ten years. (Though it rarely actually planned on spending more in a subsequent year — the spending seems to just happen anyway.) So why would we expect 2014 to be any different? Besides, Amazon has missed as often as it has hit earnings targets for the past couple of years. Dependability is too low to gamble on it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.