Amazon (NASDAQ:AMZN) stock has not been impressive relative to many of its peers. In fact, it’s been quite the laggard in many regards. Earnings haven’t had the same “oomph” as before. Plus, it lacks the financial firepower that some of its other FAANG components carry.
Does that make it the worst FAANG stock to own?
Amazon Stock versus FAANG
In the past 12 months, AMZN stock is down nearly 12%. That lags every FAANG member except Netflix (NASDAQ:NFLX), which is down more than 31% in the same timeframe. It’s also the worst performer over the last six months, again with the exception of NFLX, with shares down almost 2%.
AMZN’s year-to-date gain of 19% is more impressive. However, it significantly lags the 40% gain in Facebook (NASDAQ:FB) and the 42% rally in Apple (NASDAQ:AAPL). That said, it’s about in line with the 20% bump in Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
Sadly — albeit barely — AMZN also lags the YTD rally in the S&P 500 by several dozen basis points. However, it’s lagging the S&P 500 by almost 800 basis points over the last year.
Enough Already, What’s Up?
Okay we get it: AMZN stock is lagging its peers and is in line with the S&P 500 so far this year.
I think a bit of this stagnation has been digestion, meaning AMZN stock is simply consolidating as investors absorb the its longer-term gains. The other part is a game of rotation.
Remember, Amazon stock is still up 116% over the past three years. That’s better than all of FAANG, again, with the exception of Netflix. The next closest to AMZN in that timeframe is Apple, which is up 103%. Over the last five years, AMZN is still up 439%, besting all of its peers.
My point is, after racking up huge gains and at one point, hitting a trillion-dollar market capitalization, investors need time to absorb the stock price.
As for rotation, we’ve seen Microsoft (NASDAQ:MSFT) get a lot of love. It’s added more than $300 billion to its market cap in less than two years. Facebook has come back to relevance. GOOGL has tacked on $100 billion in market cap in three months.
It’s not so much that Amazon is the worst FAANG name; it’s that it’s simply out of favor.
Trading AMZN Stock
The question now is, when will it come back in favor?
I will not make the mistake of betting against Jeff Bezos and company. Nor will I extend that mistake to Alphabet and Apple over the long term. Simply put, I’d rather be a buyer on big dips than anything else. The only problem is, these types of declines don’t come around as often as we might wish.
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Presently, AMZN is sitting on a very important mark. After a year-long consolidation, investors would love for Amazon stock to get back on the bull train. Unfortunately, there are no guarantees. Should shares lose the 200-day moving average, it could be in trouble.
Not just because it’s below the 200-day moving average (and potentially the 50-week moving average near $1,750), but because it would lose uptrend support (blue line) as well.
This uptrend marks a series of higher lows throughout 2019, one of AMZN’s few bullish takeaways. Below $1,743 breaks that trend and puts the June lows on the table. If uptrend support holds, investors will look for a test of $1,850 and the 50-day moving average. Over both, and a run toward $1,950 or higher is possible.
Bottom Line on AMZN
One observation that I’ve had with FAANG lately is this: those with the strongest balance sheets are doing the best. Apple, Alphabet, Facebook and Microsoft have some of the strongest balance sheets in the world. They have huge cash hoards and robust free cash flows.
Further, they have lower valuations as well.
Among the FAANG and Microsoft, Amazon and Netflix have the two worst quick ratios and current ratios. They have the highest trailing price-earnings ratios and price to free cash flow ratios. Additionally, AMZN has the highest enterprise value to EBITDA multiple.
That’s not to say it’s a bad company. But one can see why in this environment, it has lagged the rest of the group. It’s investing heavily in one-day shipping and has immense competition on many fronts — including several companies already discussed here.
That said, its cloud business is a juggernaut and its core business (e-commerce) operates amid a long-term secular tailwind. I wouldn’t bet against AMZN necessarily, but one can see its stock is stalling.
In this case, use the charts as your guide. Above the 50-day and $1,850 is more bullish. Below the 200-day warrants caution. Below $1,740 is bearish. I would love a big selloff as another opportunity to nibble AMZN at a discount.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and GOOGL.
