I have been a fan of Amazon (NASDAQ:AMZN) stock for years. Every significant dip, especially when the experts cite profitability reasons for it has been a buying opportunity. This is also why AMZN stock has already shattered records this year.
Its stock chart is something special, yet the analysts don’t get it. I pointed out the experts’ mistake in February 2019, when they warned against its commitment to excessive spending.
AMZN stock fell below $1,600 per share on an earnings report, and the right thing to do was to buy that dip. Those who did, doubled their money, which is incredible given the market cap of this monster.
Jeff Bezos, CEO of Amazon, gets my vote for the best of all time. What he and his team have accomplished is astonishing because they are not a one-trick pony. They have entered dozens of verticals and dominated almost all of them. Moreover, they invented a few new ones along the way, like the AWS division, which dominates the web as we know it.
Companies like Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) are playing catch-up to it. By the time they do, Amazon will be onto the next success story.
It is hard to buy a stock that is rallying out of control because it seems like it’s ready to correct at any point. It is easier to patiently wait for a dip in AMZN stock and buy it, especially when the experts tell you not to. Unless management gives you a reason to doubt their abilities going forward, it makes absolutely no sense to bet against them for the long term. Those who did paid dearly … just ask businesses like Macy’s (NYSE:M) and its friends.
AMZN Stock Is Twice as Cheap as Other Mega Caps
Some think that the novel coronavirus crisis gave them an unfair advantage, but the company put itself in the position to take advantage of a bad situation. It is now the second-largest private employer in the U.S. behind only Walmart (NYSE:WMT). Therefore, Amazon’s stock deserves more respect from fundamental investors as well.
There are a few dinosaurs that still believe that it is “expensive” and this could not be further from the truth. To truly judge a company that is this dedicated to growth, one must consider the price-to-sales ratio because that indicates how much froth is in the current stock price. Amazon has hardly any of it because its stock price is 5.6 times its full year sales.
For absolute comparisons Facebook (NASDAQ:FB) and MSFT are almost twice as expensive, while Apple (NASDAQ:AAPL) is 40% higher. Amazon is in fact cheap.
Amazon just reported earnings and grew its sales 40%. Yet the media focused more on the fact that AWS growth fell below 30% by only one point. The bottom line is that Amazon blew away all expectations and had astonishing growth, so it doesn’t really matter if the mix shifted a bit.
The company continues to execute flawlessly on plans and deliver growth that rivals the newest startups. It is abundantly clear that Amazon is in the business of accumulating successful businesses. Squabbling over the mix minutia, claiming it’s a failure, is a missing the whole point.
Buy the Dip When It Comes
Amazon is a monster on Wall Street … it’s amazing that not everybody knows it. Investors who own AMZN stock can rest knowing that there is more upside over the years.
Traders, on the other hand, have to be a little bit more tactical given the recent price action. The immediate levels for Amazon show some support around $3,100 per share. The good news is that there are more support levels almost at $200 increments below it. The rally came fast, which leaves it vulnerable to dips. But having these plateaus along the way provides many opportunities for the stock to find its footing.
The best breakout level came from $2,900 per share, so that would make a decent attempt to buy the dip if and when it comes. Otherwise, I would wait for a foolish selloff and maybe get lucky near $2,640. The longest battle this year was at $2,500 per share, where shares spent two months fighting. The breakout finally happened in the middle of June and the bulls never looked back. On the way down, this zone should be bulletproof regardless of what market conditions are like.
In short, betting against AMZN stock — a proven winner — makes absolutely no sense. Shorting it is ill-advised, so you should either love it or just watch from the sidelines.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.
