2020 was a disaster on a human level because millions are suffering from Covid-19. But it also saw the death of many businesses. On the one hand, there is no shortage of corporate suffering, and on the other we have Amazon (NASDAQ:AMZN). Because of the quarantine, demand for its services exploded. Consequently, while the markets suffered, Amazon stock rallied to new highs. Investors in it are flush with profits and they are not relenting.
In a normal year Amazon is a momentum stock. Add to it that now we have the social distancing and it’s got kindling for months. The fire under it is raging.
For as long as the bulls are in charge on Wall Street then it’s a buy. Own it because it grows 30% a year every year. This has been a winning strategy for more than a decade.
Under the leadership of Jeff Bezos, the team has executed flawlessly on plans. Some call it lucky but I say that they made their own luck. They quietly owned the cloud when no one expected it.
Amazon Stock Is Winning Because of Great Management Teams
Now most other tech companies like Microsoft (NASDAQ:MSFT) and Alibaba (NYSE:BABA) are playing catch up. Amazon is probably already brewing their next coup. Amazon stock is up 73% year-to-date and the other two are up less than half as much.
Clearly Amazon is the measuring stick by which I judge all growth companies. This year Zoom (NASDAQ:ZM) is hogging the attention. It’s easy to do that when their growth reports are rolling over last year’s weak numbers. They won’t be turning +350% comps over this years numbers in 2021.
Meanwhile Amazon delivers 30% growth every year for a decade. I don’t mean to belittle Zoom because what they’ve done is extremely impressive. My point is to remind investors that Amazon stock is the benchmark over time.
The fundamentals have puzzled experts for years. The critics couldn’t stop shorting it based on wrong pretenses. First their argument was that it lost too much money. Then when Amazon showed profit they complained about their thin margins. Haters don’t get it. Amazon runs lean on profits on purpose. That is how they can grow this much and for this long.
It’s not a coincidence that they find themselves leading in the areas that matter. Judging its worthiness of investment based on the price-to-earnings ratio is faulty logic. I view it from a realistic lens and I am not all in all the time. In fact, in April I cautioned against blindly chasing it. The stock fell about 5% before mounting its massive rally.
AMZN Is 40% Cheaper Than AAPL
The only metric that matters is its price-to-sales. Amazon stock is 40% cheaper than Apple (NASDAQ:AAPL) and 55% cheaper than Facebook (NASDAQ:FB) from that perspective. They have proven to Wall Street that they can dial up the profits at the drop of a hat. For now they choose to continue pursuing the growth path. Hold Amazon stock long for as long as this company remains in startup mode a decade later.
AMZN is about 100% above the March low so clearly the easy short term profits are done. However, it spent the last five months consolidating inside a wide range. The benefit of that is that the bulls get comfortable up at these altitudes.
The next new trade is easy. I would either buy the dip into support or chase the rip above prior fails. There are several levels on either of these sides and choosing the right ones depends on the investor timeline.
For the fast traders they can chase breakouts from $3,293 and more from $3,425. If Amazon stock rallies above those prior resistances they will invite new buyers in droves. The rally from there could be to new all time highs once more.
Conversely, if the price dips into $3,000 I would get long. I can use options to do that now by selling the January $2,850 put. For that I collect more than $6 per contract. My breakeven price would be $2,844. If AMZN stays above my strike then I win. This means that not only I don’t need a rally to win, I have an 11% buffer.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.