Amazon.com, Inc. (AMZN) stock has more than doubled so far this year, AMZN’s valuation is stratospheric and the company is only profitable when it feels like it — and yet shares remain a buy on the cusp of the all-important holiday shopping season.
As much as there’s a solid fundamental case to be made for buying Amazon stock for the long haul, the short-term argument rests on something far more simple, if seemingly stupid: Following the herd.
From career risk to seasonality to buying the headlines, AMZN is a buy these days because investors and traders are buying it.
First, let’s just consider the reality of this year’s market. It has been a stinker. The S&P 500 is up less than 2% for the year to date.
That means too many professional investors are sitting on less-than-stellar returns for the year-to-date and are running out of time to catch up with their benchmarks. AMZN — with its 114% YTD price return and market cap of $312 billion — is an ideal choice for adding window dressing to a disappointing portfolio.
There’s also the case of simple seasonality. AMZN is a hot retail stock at the most important time of the year for retailers, and so investors and traders react accordingly. Over the last 10 years, Amazon stock has generated an average price gain of 4.5% in November and 0.7% in December, according to data from Thomson Reuters Stock Reports.
Amazon Stock Benefits from Happy Headlines Too
The news flow is also going to continue to support AMZN as we head into year-end.
The market becomes glued to retail-sales forecasts at this time of year. Indeed, by the time the actual revenue figures are released in January and February, the market has largely lost interest.
That makes this year’s rosy projections for e-commerce especially supportive of AMZN stock. Consider that Forrester Research expects online sales to rise 11% in November and December — or about three times the growth rate for total holiday retail sales. The National Retail Federation expects holiday sales to grow 3.7% this year.
That’s just the baseline. As for AMZN, market researcher ChannelAdvisor thinks it’s growing two to three times faster than the total e-commerce growth rate, or nearly 10 times faster than total retail sales.
Investors see reports like this and think AMZN is a slam dunk.
Bottom Line for AMZN Stock
The funny thing is that AMZN is a buy for reasons that have nothing to do with Black Friday, Cyber Monday and the rest of the selling season. From the expansion of Amazon Prime to the success of its cloud services businesses, there is no shortage of reasons to be bullish on AMZN stock over the long haul.
Sure, the valuation seems insane — AMZN currently goes for 118 forward earnings — but this is a name that has never — never — traded on valuation.
If you’re looking for an easy trade heading into the end of the year, you might as well look at AMZN. Everyone else is.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- Don’t Expect GMCR Stock to See $60 Anytime Soon
- 10 Stocks to Buy Before Analysts Start Chasing Them Higher
- Tesla Motors Inc Faces HUGE Hong Kong Threat – TSLA Stock