Amazon’s (NASDAQ:AMZN) two main businesses look at least partly immune to the coronavirus from China. This fact makes Amazon stock a good name to buy for longer-term investors at this point.
Common sense suggests that Amazon’s e-commerce business would benefit from consumers’ inability or reluctance to leave their homes. Moreover, the first-quarter financial results of Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD), China’s two leading e-commerce companies, provide evidence to support that theory.
Specifically, Alibaba indicated that the coronavirus outbreak in China was having a mixed impact on its business. On its Q4 earnings conference call, the company indicated that consumers were ordering more groceries.
Conversely, Alibaba said that its overall e-commerce business was negatively impacted by merchants being out of business and by its inability to deliver a significant number of packages on time. But there were some positive notes. Alibaba said that the outbreak had made more consumers comfortable with using e-commerce to meet their daily needs.
Meanwhile, JD predicted that its revenue would jump “at least” 10% year-over-year in Q1, although it added that the outlook could change.
On the company’s Q4 earnings conference call, CEO Richard Liu said, “the consumer staple categories such as groceries, fresh produce, health care and household products are in greater online demand during the past five weeks.”
Cloud Can Survive
Analysts are upbeat about the ability of large cloud businesses, including those of Amazon and Microsoft (NASDAQ:MSFT), to continue growing during a recession.
“Among the digital giants, nobody’s scaling back for a blip,” a Seattle Times reporter quoted John-David Lovelock, chief forecaster with research firm Gartner as saying. The Columbian, another newspaper, itself wrote:
“Even in the event of a severe global recession, there are reasons to expect cloud computing — which fundamentally changed the information-technology business model — would continue to grow. That’s what happened during the last recession, when the technology was still nascent.”
Multiple Analysts Are Upbeat
Mizuho analyst James Lee believes that Amazon’s results could be boosted by “increased demand for health-care, grocery, and consumer packaged-goods products.” He also believes that, following in the footsteps of Alibaba and JD, Amazon could benefit from increased use of e-commerce during a coronavirus outbreak.
Meanwhile, Bespoke Investment named Amazon as one of 21 stocks to buy for the “coronavirus economy.”
Finally, Cowen recently increased its price target on Amazon to $2,700 from $2,650, almost $1,000 above the stock’s current price. The firm believes that Wall Street is underestimating the potential of the company’s overseas opportunity. It identified Amazon stock as its top pick for 2020.
The Bottom Line on Amazon Stock
Based on the performance of Alibaba and JD, Amazon’s e-commerce business is likely to perform pretty well during the coronavirus outbreak.
Meanwhile, there’s a good chance that the company’s cloud business will prove to be largely recession-resistant. The cloud is just so integral to companies’ IT operations.
And after the stock’s recent pullback, its valuation is no longer very high. As its price-sales ratio is just under 3.5, Amazon stock looks more attractive here.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not hold a position in any of the aforementioned securities.
