The market has reached the height of its silly season. Even ordinary stocks are being given extraordinary prices as the averages hit new highs nearly every day. But if you’re young enough to wait until we cross the next chasm of recession, your best bet remains Amazon.com Inc. (NASDAQ:AMZN) stock.
Amazon’s dominance over the infrastructure of modern commerce — clouds, devices and logistics — means it’s one of the few companies on the board you can be certain will be around, even thriving, in the year 2030.
In the near term, AMZN stock is about to cross the $1,000 barrier for the third time in 2017. If Amazon achieves $160 billion in sales this year, $1,000 per share is a market cap three times higher than that, at $477 billion. Like the rest of the market, AMZN stock is overpriced, but, if you wait for it, you should be rewarded.
So goes the conventional wisdom.
You Need Patience
Amazon’s dominance of commerce infrastructure means it can get a big chunk of any market it chooses to enter.
But I think it’s foolish to think no one is ever going to shop again, which is what today’s valuation implies. Amazon sells at 3 times sales with most of its revenue being derived from retailing, while other retailers are lucky to sell at one-third sales. Kroger Co. (NYSE:KR), with nearly twice as fat a bottom line last quarter ($353 million) as Amazon’s $197 million, is now worth just one-seventh of its revenue, less than $18 billion.
From a relative strength perspective, in the near term, it’s obvious where you should put new money to work. But that’s not how the market is thinking. Instead, the market assumes Amazon is about to replace FedEx Corp. (NYSE:FDX) , even while it’s just arbitraging, and take over the drug market from Walgreens Boots Alliance Inc. (NYSE:WBA), a market is has yet to enter.
The predictions are hard to dismiss when Amazon is beating companies such as Alphabet Inc. (NASDAQ:GOOGL,GOOG), which is going to have a very tough time getting share against the Amazon Echo and is seeing its market share with YouTube threatened.
The Silly Season
It’s clear we’re in the silly season when you see how politicians are falling all over one another to lure the company’s “second headquarters,” which is only going to support back-office personnel. Celebrity endorsements, fake five star ratings and fat government checks aren’t what matter for a 20-year investment. Amazon wants access to transit, highways, an airport, a well-educated workforce and affordable housing. Stunts are for losers.
But they do illustrate just how crazy people have gotten about this Amazon and AMZN stock. Even at its current price, 37 of 47 analysts following Amazon are still pounding the table, screaming buy, buy, buy.
How High Is Too High for AMZN Stock?
As I indicated at the start, AMZN stock is great for those who can see across the chasm of the present market peak to its next peak. But demographics indicate that’s not true for everyone. Between now and 2030 the entire Baby Boom generation, 24% of the population, will be retired, seeking income from investments and not growth. Jeff Bezos, it must be noted, is one of us.
Will Amazon be a dividend stock in 2030? You won’t want it if it is — not at these prices. A 5% yield on Amazon today would mean a $50 per share annual dividend, and that kind of yield will never draw today’s 255 price-to-earnings ratio.
Demographics are destiny, not only for Amazon, but for the entire market. Investing trends are going to change, and Amazon is on the wrong side of them — even if it does take over the world.
I lightened up on my AMZN stock exposure earlier this year and I’m glad I did.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
