Congratulations are in order to owners of Amazon.com (AMZN) and/or Alphabet (GOOG, GOOGL). Santa Claus was kind to both groups this year, as GOOGL stock as well as AMZN stock each hit new record highs this past week.
Contrary to the cliche, however, when you’re talking about stocks, just because these two birds flocked together in their feat doesn’t mean they’re of the same feather.
In other words, AMZN stock and GOOGL stock aren’t wildly bullish for the same reason, and that disparity will make a difference sooner or later.
A reality check for each name is on order, for anyone who only has room to add one or the other to their portfolio.
AMZN Stock, Up Close and Personal
Amazon shares were phenomenal in 2015, gaining 120% following a lackluster 2014. Making the big 2015 gain even more impressive is the fact that it didn’t get any help from the broad market; the S&P 500 ended the year almost exactly where it started.
There was more than one prod for the big performance from Amazon in 2015, including an impressive marketing effort for Amazon Prime and reports that the organization was mulling the development of its own delivery service.
Make no mistake, however — the bulk of the reason AMZN stock was so hot in 2015 was the rapid growth in Amazon Web Services (AWS) … the company’s stake in the swelling cloud computing market. Fanning those bullish flames was the notion that operating profits for AWS began to widen, giving hope to patient investors that AMZN stock may fundamentally justify its huge valuation just yet.
And it would be no small feat. AMZN stock presently trades at 914 times its trailing twelve-month income, and 113 times its projected per-share profits for the coming year.
Building on that hope, news from Amazon that it broke several records during this most recent holiday shopping season was enough to push shares to an all-time high of $696.44.
GOOGL Stock Under the Microscope
While AMZN stock was the hands-down performance winner of this duel in 2015, it’s not as if GOOGL stock was a disappointment. Alphabet shares gained 47% this past year, and unlike Amazon, the web-search giant actually backed up its gain with real results, right now.
If analysts are collectively on target, Alphabet will grow its top line from $66 billion last year to $74.4 billion in 2015 … a 12% improvement. Earnings-wise, income should ramp up from $25.14 per share of GOOGL stock in 2014 to $28.99 per share this time around.
That’s a 15% increase.
They’re not the eye-popping improvements Amazon.com investors have grown accustomed to. Then again, Alphabet doesn’t have the luxury of shareholders not caring if it never turns a decent profit.
That growth is also impressive considering Google — the core component of Alphabet — was starting to hit a serious headwind.
Yes, Google is the ultimate beneficiary of the proliferation of the Android operating system. The migration of the world’s Internet usage from desktops and laptops to smartphones and tablets, however, doesn’t lend itself to web advertising. There’s just not much room for ads on those smaller screens, and Google was starting to feel the pinch.
It didn’t simply roll over though. It changed. For instance, in May, Google unveiled a new type of ad explicitly for mobile devices that sends a user to a purchase opportunity rather than simply presenting a link.
It’s just one several such initiatives the company took this year, and the numbers say they’ve paid off. Last quarter, revenue as well as earnings continued to grow firmly.
And the Winner Is…
So which of the two names is the best to own?
First and foremost, it has to be clarified that a comparison of AMZN stock and GOOGL stock is like comparing apples and oranges. Alphabet has proven it’s a viable business, while Amazon is perennially driven by an “it’ll all be worth it next year”… even though Amazon.com never seems to get to that promised land.
Thing is, it works for AMZN stock. Those who’ve played the game have made a fortune with their Amazon trades.
To answer the question though, GOOGL stock is the stronger name of the two to own right now (heading into 2016 anyway). The big rally in AMZN stock against a backdrop of brewing cloud competition few Amazon investors want to talk about means the big rally makes shares vulnerable to a pullback in the coming year. That could put the kibosh on the AWS growth many traders are counting on serving as a bullish catalyst for shares.
Meanwhile, with a new adverting-sales paradigm in place, Alphabet looks like it’s just hitting its full stride again.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
