One investment question I have received quite often lately has to do with two high-flying internet names that continue to defy gravity. Both take an out-of-the-box approach to doing business, and Wall Street has had a love/hate relationship with them for years based on their unorthodox strategies. But lately there has been nothing but love for one half of the famous – or should I say infamous? – FANG stocks.
Amazon.com (AMZN) and Alphabet (GOOGL) were in a race to a $1,000 share price, and AMZN came out on top when it surpassed the historic milestone just a week before GOOGL did. With both stocks now trading at the millennium level, many are left wondering if they only had $1,000, which would be the better investment?
Let’s break it down with my NexGen three-prong approach: fundamentals, technicals and what I like to call the intangibles. These are the themes and catalysts that are changing the market in the here and now and are what will help propel a stock in the next-generation of investing.
When it comes to the fundamentals, the better value according to traditional metrics is clearly GOOGL as it is currently trading at 29.4X 2017 EPS estimates. AMZN, on the other hand, trades at a whopping 150X 2017 estimates.
However, there is a lot more to investing than a PE ratio. In fact, a company’s earnings growth rate is very important to give context to the valuation. Right now, there’s no question that GOOGL is growing earnings much faster than the overall market, but there’s also no question that it’s lagging behind AMZN. By 2020, analysts expect GOOGL to earn $44.14 a share, which equates to 62% growth over 2017 earnings. AMZN’s bottom line is anticipated to explode 320% from this year to $28.05 a share by 2020.
So even though AMZN trades at a PE ratio of 35.5X based on its projected 2020 earnings, I have to consider the fundamental competition a tie as its earnings growth offsets its high valuation.
On to the technicals. The charts of these two stocks are nearly identical right now, and they’re actually two of the best in the entire market. I would be more than happy to be an owner of either company based solely on its chart, so once again we’re calling this face-off a tie.
At this point, both stocks have strong arguments as the companies are leaders in innovation and will continue to lead their respective sectors. But in this scenario, we only have $1,000 to spend and we have to make a choice. And that means it all comes down to the intangibles.
Drum roll please…
Because the consumer makes up two-thirds of the U.S. economy, my pick for the best investment would be Amazon. Amazon Prime has changed the way I purchase everything from protein powder to a coffee table, and the convenience combined with the pricing power that this company offers is unmatched in any industry. That will be the catalyst that drives this stock to new highs for years to come, helped by ongoing innovations like drones delivering your packages to you. That’s why if I only had $1,000 to invest, I’d place my bet on AMZN.