Amazon Stock Isn’t Overpriced or Out of Reach Today

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  • Among mega-cap stocks Amazon (NASDAQ:AMZN) is well-positioned to break out to new highs.
  • Risks both off and on Amazon’s price chart persist.
  • Investors can purchase a vertical for leveraging upside in AMZN stock with less risk.
Closeup of the Amazon logo at Amazon campus in Palo Alto, California. The Palo Alto location hosts A9 Search, Amazon Web Services, and Amazon Game Studios teams.

Source: Tada Images / Shutterstock.com

Amazon (NASDAQ:AMZN) has managed to stand out among other mega-cap stocks this year, returning nearly 12% to AMZN stock investors in March. Following Monday’s relative strength bid of more than 2.50%, Amazon shares are close to reclaiming positive ground in terms of year-to-date performance.

Given the S&P 500 and Nasdaq were squaring off with corrective and bear market lows just several sessions ago and remain underwater on the year by 4% and 8.25%, respectively, AMZN stock is displaying both relative and absolute strength.

AMZN’s performance is also top among trillion-dollar mega caps Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Only Tesla (NASDAQ:TSLA), which has been struggling to cross the $1 billion valuation barrier, is doing better.

So, what gives in Amazon? Is the war over? Are inflation, a hawkish Federal Reserve and Covid-19 now in the rearview mirror? Hardly. Today, let’s look at what’s driving the bullish price action in AMZN stock. After, we’ll determine a way to position smartly for a much larger rally.

Ticker Company Current Price
AMZN Amazon $3,381.06

Bullish Drivers to Deliver for Amazon

Analysts at Evercore ISI may know what’s suddenly driving AMZN higher. Late last week the firm reiterated its AMZN outperform rating on shares. The outfit sees four major factors as helping the stock capture a 12-month price target of $4,300 and new highs.

For starters, revenue tied to shipping elasticity or consumer demand is expected to increase above Street views following distribution capacity investment by Amazon.

Another avenue of growth that hasn’t been fully priced into AMZN stock is the company’s brand advertising. Ad sales of more than $31 billion in 2021 grew by 32% year-over-year. Strikingly, that’s more than Alphabet’s YouTube, but without the privacy-related ad challenges facing the popular app. Third, Amazon’s online grocery delivery business and new Amazon Fresh stores with its “walkout” technology could be an industry “game-changer” within the final frontier for online retail.

Lastly, AMZN stock appears statistically cheap.

Along with revisiting its outperform rating, Evercore actually revised its price target lower from $4,700 to $4,300. The good news? That’s still a premium of 27% to today’s market price and with AMZN’s current enterprise value, investors are receiving the company’s retail business for free.

What Matters on AMZN Stock’s Price Chart

Amazon (AMZN) third double bottoming attempt out of corrective base on monthly price chart
Source: Charts by TradingView

Technically, and if investors trust the saying the third time is the charm, then AMZN stock has a great deal working in its favor from pattern and time vantage points.

In 2021, the S&P 500 was up more than 28% and finished just off record highs. AAPL stock added 34%. GOOG nearly doubled. You get the picture. It was a great time to be invested in large-caps, right? Not exactly.

Amid last year’s festivities AMZN stock barely scrapped together 2%. The good news is that if time heals all wounds, Amazon shares have certainly put in the time to warrant a period of outperformance.

Today, after a corrective phase of nearly 18 months, AMZN has produced a third bullish double-bottom pattern that found support off the stock’s Covid-19-related 50% retracement level.

Combined with an oversold bullish crossover in Amazon’s monthly stochastics and fairly tight Bollinger band pattern testing, a third and successful breakout and even Evercore’s $4,300 appear approachable.

Buy Amazon Shares Today With Less Risk

At the end of the day, AMZN stock has the goods to make an attractive purchase in investors’ portfolios today. That said, I’d be wary if shares fell below $2,925 as a much larger bear market could be in the offing.

That amounts to holding risk of around 13%. It might seem excessive to some, but investors simply need to size the position accordingly — or risk waiting on Amazon’s talked about 20-for-1 stock split on June 6. Yes, that’s a risk. The fact is AMZN shares could be substantially higher by then.

Alternatively, bullish investors may want to leverage today’s situation with a modestly, out-of-the-money, fully-hedged intermediate-term vertical. One contract is the equivalent of 100 Amazon shares and spreads trade at a fraction of today’s AMZN stock price.

One such combination that fits in well with the size of AMZN’s corrective base and shares moving in the direction of Evercore’s price target is the October $3,700/$3,900 bull call spread.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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