Amazon Investors Should Buy Into Earnings Weakness, Sell Into Strength

If Amazon (NASDAQ:AMZN) whiffs on earnings after the market closes Tuesday I’ll be sorely tempted to buy more AMZN stock.

AMZN Stock: Buy Into Amazon's Earnings Weakness, Sell Into Strength
Source: Julie Clopper /

I first bought Amazon back when the stock was selling at $330 per share. It opened for trade July 22 at $1,971, close to the all-time high of $2,012 reached last September. That high was followed by a sickening fall that sent it to a low of $1,377 around Christmas. Throughout 2019 it has been grinding back toward its high and is now approaching it.

Amazon is expected to post earnings of $5.29 per share on revenue of $62.7 billion. That’s growth of 19% from a year ago, at scale. If it hits the “whisper number” of $5.70 per share, it’s 12% higher than numbers that sent it skyrocketing a year ago.

Ignore those numbers when looking at Amazon stock.

The Real Amazon

Amazon is becoming, like Apple (NASDAQ:AAPL) — it’s a stock you own, not a stock you trade.

This is true despite the recent recent volatility in the AMZN stock price. Right now, it’s fully valued. Even if it hits the high-end of estimates, you’re paying 85X earnings. You’re paying nearly 4X revenue for what are mostly retail sales.

Most analysts will be looking for renewed top-line growth, knowing that profits will still be plowed back into the business. They may be disappointed. The AMZN stock price may fall.

Having mostly built-out its global cloud footprint, Amazon has refocused this year on its delivery infrastructure. This includes a fleet of trucks and airplanes that let it break bulk for less than Walmart (NYSE:WMT) and deliver for less than FedEx (NYSE:FDX). Running these networks efficiently won’t provide the kind of quick profit hit it gets from the cloud. But it makes future revenue growth more sustainable.

That’s one reason I expect Amazon to fall short of expectations soon. The other reason is the growing campaign of ill-feeling toward the company. Liberals hoping to break it up and conservatives resent the liberal politics of CEO Jeff Bezos.

The Next Phase

The next phase of Amazon success will combine the cloud and delivery to transform the U.S. healthcare system.

Amazon’s aptly named Haven unit will, like CVS (NYSE:CVS), UnitedHealth Group (NYSE:UNH) and Centene (NYSE:CNC), give the income of insurance premiums visibility and control over the outgo. This is why hospitals and doctors’ groups hate and fear the trend.

But this connection is coming. Big employers, Amazon and partners Berkshire Hathaway (NYSE:BRK.A) and JPMorgan Chase (NYSE:JPM) being among the biggest, can no longer deal with the waste of the current system. Like all American multinationals, these companies are paying 50-100% more to cover the health care costs of U.S. employees than international rivals.

This must end.

One key to ending it is to deal with chronic conditions. They represent 75% of the bill. Fighting the effects of smoking, overeating, drinking and sedentary lifestyles, leading to diabetes, heart disease and kidney failure, requires a new focus on wellness. We need to keep people out of hospitals.

This is a $3 trillion opportunity, growing at 5.5% per year. Amazon that, get just 10% of it, and you’re more than doubling the size of the company.

The Bottom Line On AMZN

Wherever clouds and devices, combined with scaled distribution, can transform an industry, AMZN can reduce waste and make money.

Amazon is why the American economy continues to grow despite its political dysfunction. Only fools, and those who thrive on inefficiency, stand in its way.

In the short term, however, Amazon may have a tough time matching past success. Delivery infrastructure doesn’t provide the hit to earnings that cloud does. Once it has that scale, however, watch out. That’s why you accumulate Amazon on weakness, and, if your time horizons are short, sell into strength.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM, CVS, AAPL and AMZN.

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