Amazon Stock Is Still a Must-Own for Growth Investors

Amazon (NASDAQ:AMZN) is one of the greatest growth stocks of all time. And, 26 years after its founding, it’s still an elite name and an incredible portfolio holding. The only difference? Today, Amazon stock is one of the great large-cap growth stocks to buy — it’s no longer the ambitious money-losing online bookstore of a quarter-century ago.

Amazon Stock Is Still a Must-Own for Growth Investors

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Founded by Jeff Bezos in 1994, the Seattle, Washington-based e-commerce giant has always had growth in its DNA. Unperturbed by financing its aggressive expansion through thin margins and large losses, Bezos crafted a long-term mission to become the largest online retail company in the world.

When Amazon went public in 1997 at $18/share, its market capitalization was under $500 million. A couple decades and three stock splits later, Amazon stock is up more than 1,500x the split-adjusted IPO price of $1.50 per share. Anyone who invested $1,000 in the company at its IPO price and held through thick and thin through today is now a millionaire.

To be clear, buying into the stock in 2020 won’t offer the same sort of historic gains over the next two decades. But by no means does that suggest this stock should be shunned. Here’s why:

Encouraging Long-Term Focus for Amazon Stock

When Amazon released first-quarter earnings on April 30, shares initially took a 5% hit as markets processed a vow from Bezos to plunge its second-quarter earnings back into the business.

In Bezos’ own words, directly from the earnings release:

“Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities.”

As shareholders, we all want the companies we own to earn money, and preferably sooner rather than later.

But as growth investors, we should applaud companies that reinvest in themselves in furtherance of long-term goals and profit-making potential. That’s exactly what Amazon is doing here, and any longtime shareholder learned long ago that trusting Jeff Bezos to make those capital allocation decisions is typically the wisest option.

A Vastly Reduced Risk Profile; Incredible Profit Potential

Few companies can afford to invest $4 billion into making their business more resilient and better prepared for a post-novel-coronavirus re-emergence. The fact that the company is willing and able to do so in the midst of what may be a lengthy recession is precisely what sets it apart from the pack and helps make Amazon’s stock so attractive.

As a large-cap growth stock, Amazon is worth more than $1 trillion, yet it still managed to grow revenue by 26% last quarter. While earnings will take a hit in Q2, its high-growth and high-margin cloud computing arm Amazon Web Services (AWS) allows it not only to expand competitive advantages over time, but to turn on the profit spigot down the road, virtually at will.

Of Amazon’s $3.99 billion in operating income last quarter, about $3.08 billion, or 77%, came from AWS, which grew its sales by 33% year over year, a faster pace than the company’s overall revenue.

The pandemic, while destroying some companies, has done nothing but boosted Amazon’s long-term staying power. Not only is Amazon’s decades of investing in e-commerce and logistics making its services more vital than ever, but services like Prime Video and Fire TV are also in high demand as stay-at-home orders proliferate domestically and internationally.

Few companies are growing so quickly with almost zero risk of being usurped or outmaneuvered in the visible future, and that helps makes Amazon stock, with its overall ‘B’ rating and ‘A’ rating on the quantitative side, one of the few growth stocks that would’ve been a great buy in 1997 and remains outstanding in 2020.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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