Price/fair Value Winner: Amazon Stock
Morningstars analysts calculate a fair value estimate for each stock they cover. The fair value estimate represents the intrinsic value of a stock, based on how much cash we think the company can generate in the future. A stocks price/fair value is simply its current market price divided by the fair value estimate. A stock trading below 1.0 is undervalued a stock trading around 1.0 is fairly valued and a stock trading above 1.0 is overvalued.
As of this writing, we think Amazons stock is about 30% undervalued, while Walmarts stock is just 4% undervalued. The winner from a price perspective is Amazon stock, which is trading at a more attractive price today.
Positioned For Success As Covid Subsides
Amazon stock bulls, however, think the company is positioning itself for even greater success as the world emerges from the effects of Covid-19.
“In our view, Amazon is uniquely positioned to exit this crisis as one of the biggest beneficiaries of accelerated digital transformation,” Monness Crespi Hardt analyst Brian White said in a recent note to clients.
In a sign of things returning to normal at Amazon, its annual sales extravaganza known as came back to its regularly scheduled dates, following a number of earlier schedule changes previously caused by the coronavirus pandemic. Amazon is reportedly adding another Prime Day event in the fall.
Another significant event during the second quarter came when Amazon announced it will acquire One Medical for about $3.9 billion, including debt. It’s the e-commerce company’s largest expansion into health care services. One Medical is a technology-centric primary health care business.
Amazon’s acquisition of One Medical is its largest push yet into the health care business, which began with its acquisition of PillPack four years ago for a reported $1 billion. That gave Amazon the ability to ship prescription drugs around the country. In the past few years Amazon has expanded into the health care market.
Stomp The Accelerator Or Hit The Brakes On Tesla
There’s also electric-vehicle manufacturer Tesla, which has won the hearts of countless investors following a close to 13,000% share-price increase over the trailing decade. Tesla has been able to do what no other automaker successfully did for over five decades — build an auto company from the ground up to mass production.
Somewhat keeping with the theme of this list, Tesla’s “motor” is running on competitive advantages. The company’s batteries provide better power, capacity, and range than much of its competition. Further, the addition of the Austin, Texas and German gigafactories should allow Tesla to maintain an EV-production advantage over even the most tenured auto stocks.
Another reason investors are bullish on Tesla is the company’s income statement. Gone are the days where renewable energy credits were the only factor pushing Tesla into the profit column. The company generated a $3.74 billion adjusted profit in the first quarter, with automotive gross margin jumping more than six percentage points to 32.9%.
The issue with Tesla is that its competitive-edge runway won’t last forever. Legacy automakers are investing tens of billions of dollars to roll out dozens of new EVs and autonomous vehicles this decade. We’ve already started to see instances where Tesla’s flagship sedans are taking a back seat to the competition, at least from a range perspective.
Image source: Getty Images.
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So Can Gamestop Stand Up To Best Buy Stock And Amazon
Except for a vocal minority, it appears that Best Buy isnt doing so well with analysts, most of whom call it a sell. Amazon, on the other hand, is still the second largest company in sales in the US though its difficult to say if investors could see any growth with the stock. GameStop seems to have impressed investors with its new FTX partnership as the company focuses more on digital collectibles and cryptocurrency.
It will be interesting to see how these three companies fare in the third quarter of 2022 as experts fear that a recession is pending. It cant be denied that discretionary spending tends to decrease during a recession. However, economists still havent announced an official recession, and theres even the possibility that the US economy could narrowly avoid one.
Its clear that all of these companies saw growth during the pandemic when people were stuck at home and wanting to be entertained. Pandemic boredom also came with stimulus money that led to increased discretionary spending.
Will consumers still be willing to spend money on electronics and non-essential staples during a recession? Will the economy bounce back in the fourth quarter of 2022? Will the labor market stay relatively strong and prop up the economy?
These are questions that we have to be patient with.
As of closing on September 9th, heres where the three stocks stand:
- GameStop closed at $28.92.
How To Invest In Amazon With An Index Fund
Although investing in individual stocks can be appealing, investing in just one company can leave you vulnerable to potentially dramatic swings in prices. Thats why financial experts recommend most people invest in a diversified mix of index funds and exchange-traded funds that hold hundreds of companies stocks.
Luckily, AMZN is very easy to find in these funds: It usually represents about 7% of holdings in Nasdaq 100 funds and 3.5% of S& P 500 funds.
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Have Amazon’s Shares Ever Split
Amazon’s shares were split on a 20:1 basis on 6 June 2022. So if you had owned 1 share the day before before the split, the next day you’d have owned 20 shares. This wouldn’t directly have changed the overall worth of your Amazon shares just the quantity. However, indirectly, the new 95% lower share price could have impacted the market appetite for Amazon shares which in turn could have impacted Amazon’s share price.
Tips To Become A Better Investor
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Capital Allocation Winner: Amazon Stock
The Morningstar Capital Allocation Rating represents our assessment of how well a company manages its balance sheet, investments, and shareholder distributions. Analysts assign each company one of three ratingsExemplary, Standard, or Poorbased on their assessments of how well a management team provides shareholder returns. Adept corporate managers can make a good company even better.
Amazon earns an Exemplary capital allocation rating, while Walmart earns a Standard rating. Amazon stock for the win here.
How To Buy Amazon Stock With A Financial Advisor
Buying Amazon shares on your own is not your only option. If youre looking for expert support with your investments, hiring a financial advisor could be right for you. Simply tell your advisor that you want to invest in Amazon, and he or she can help you do it. Your financial advisor can also help figure out when its time to sell your shares, which can be a tricky decision.
Markets can be volatile, meaning your investment strategy can change course amid highs and lows. Whether youre new to the stock market or an experienced investor, the help of a financial advisor can set you on a course for better investment decisions. Advisors can also help you align your investment portfolio with your overall financial plan.
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Is Amazon Stock A Buy
Amazon stock is not a buy at this time.
A concern for now is Amazon is trading below its 200-day moving average. It represents the average price over the past 200 days. The moving average can give traders a sense regarding whether the trend is up or down, while also identifying potential support or resistance areas.
Amazon has hit resistance at that line, just like it did in March and early April, then pulled back. If Amazon moves above the line, great. If not, it would not be a surprise if shares decline or go flat for a while.
If you’re new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one key to the investment guidelines. IBD offers a broad range of growth stock lists, such as Leaderboard and SwingTrader.
Uncertainty Winner: Walmart Stock
The Morningstar Uncertainty Rating represents the predictability of a companys future cash flows and, therefore, the level of certainty we have in our fair value estimate of a given company. Companies that enjoy sales predictability, modest operating and financial leverage, and limited exposure to contingent events carry lower Uncertainty Ratings those with less-predictable sales, significant leverage, and significant exposure to contingent events carry higher Uncertainty Ratings.
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Amazon Stock Price Prediction
is one of the most dominant companies in the world. Whether its consumer products or business services, almost everyone has interacted with an Amazon service at some point.
An investment 10 years ago would have produced multi-bagger returns almost 10x in Amazons case. But whats the current Amazon stock price prediction, and will it continue its dominant streak in the future?
Amazon Stock: Should You Buy In July 2022
- Publish date: Jul 5, 2022 7:15 AM EDT
Amazons – stock price has fallen an eye-popping 39% since the beginning of this year. Investors have balked as the company has failed to address consensus growth expectations. Plus, the e-commerce giant revealed a bottom-line loss during its most recent first-quarter earnings release.
However, even as many investors seem to be bailing on Amazon, Wall Street remains faithful. Analysts believe that those who wait patiently will be rewarded with massive gains: according to TipRanks, the average target price on AMZN is $177, implying a 69% upside.
So, might July be the month when Amazon finally gets its groove back?
Figure 1: Amazon Stock: Should You Buy In July 2022?
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Amazon Stock Vs Walmart Stock: Which Is The Better Buy Now
After reporting second-quarter results, one of these stocks is far more attractive than the other today.
Few retailers have the distribution strength, e-commerce platform, and brand to effectively compete against in any broad wayexcept, perhaps, Walmart. Walmart has the cost advantages, scale, and e-commerce capabilities to keep Amazon on its toes.
Walmart warned in late July that profits will take a hit in the second half of 2022 because of inflation and changes in consumer spending. Meanwhile, for the third quarter. Does that mean its time to buy Amazon stock? Or is it time to buy Walmart stock?
To determine which is the better stock to buy now, lets see how each stacked up on a series of Morningstars proprietary metrics as of July 31, 2022:
- Morningstar Economic Moat Rating: Wide
- Morningstar Capital Allocation Rating: Exemplary
- Morningstar Economic Moat Rating: Wide
- Morningstar Capital Allocation Rating: Standard
Who wins this stock-versus-stock matchup? That depends on which Morningstar metrics matter most to an investor. Lets take a deeper dive into four of them.
Caveat #: The Bubble Burst Case
Having said the above, one other crucial point should be made. Buying dips works when a stock has the tendency to move higher over time. Amazon has been an immensely successful company and stock, which is why accumulating shares on the cheap has worked so well.
Now think of Amazon stock itself, but before the dot-com bubble burst. Between December 1999 and October 2001, AMZN declined by a gut-wrenching 94% from its all-time high. Buying the correction anytime in 2000 would have produced painful one-year losses.
Therefore, if an investor is fearful that Amazon shares might be trading at bubble-type prices, or that there is a significant risk that the company and stock may be unsuccessful going forward, buying dips on AMZN would be a terrible move.
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Is Amazon A Good Stock To Buy
Amazon is a company with a robust balance sheet, a highly diversified business model and a capable management team. The valuation of the business is experiencing a decline amid short-term headwinds but its fundamentals remain strong. Whether AMZN stock is a suitable asset depends on your own trading objectives and the opinion based on your own research. Remember, its important to reach your own conclusion of the companys prospects and likelihood of achieving analysts targets. Past performance is no guarantee of success. And never invest money that you cannot afford to lose.
Q1 Results Reflect Expected Struggles
The challenges in the labor, logistics, and materials markets have been well reported. Amazon spent billions of dollars shoring up its workforce through hiring, bonuses, and raised wages in recent periods. Logistics challenges and rising prices for materials have also cut into the bottom line significantly. Because of these added costs, operating income in the North America and international segments, encompassing e-commerce results, posted significant losses in the first quarter.
While this is undoubtedly concerning, it was entirely expected. There was no Q1 surprise for anyone who has been paying attention. I have mentioned in several articles that the e-commerce headwinds are likely to last for at least the first half of 2022. Here’s the good news: While painful, these headwinds are short-term obstacles.
Another point of consternation was the $7.6 billion loss from Amazon’s equity investment in electric vehicle maker Rivian Automotive. Again, this was expected as Rivian stock has not performed well. The loss is unrealized and will reverse if Rivian stock rebounds. Amazon currently owns 18% of Rivian and is expected to be its largest customer. When Rivian ramps up production, Amazon will be able to purchase a fleet of electric delivery vehicles from a company in which it owns 18% of the profits — not a bad deal.
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Open A Brokerage Account
Buying Amazon stock requires you to have a brokerage account, and online brokers offer the quickest and easiest ways to start one today. If you dont have a brokerage account, you can open one in about 15 minutes the process is similar to signing up for a checking or savings account. See our tutorial on how to open a brokerage account for more details.
If you can afford a single share or more of Amazon, you have a wide range of options. Look for a broker with low or no commissions, excellent customer service and useful tools and resources.
If your heart is set on Amazon and you cant afford to buy a full share at the current trading price, look at brokers that offer those fractional shares mentioned above. That will allow you to buy a portion of one share of Amazon to get started.
Amazon Stock Price Forecast
According to CNN Business, based on 53 analyst estimates with an Amazon stock price prediction, 43 have a buy rating, seven have an outperform rating and three have a hold rating. The highest price forecast is $215 and the lowest is $110. The median 12-month Amazon stock price forecast is currently $174, or about 24% above current levels.
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Why Some Investors Are Avoiding Amazon Right Now
During the early days of the COVID-19 pandemic, Amazon began spending heavily to keep up with demand. Over about a year and a half, the company more than doubled the size of its fulfillment network. But the extra demand didn’t last as long as hoped, and the problem has been compounded by a lack of goods due to supply chain constraints. Tack on soaring fuel costs related to Russia’s invasion of Ukraine, and it’s no wonder the company’s losing some money.
The Bear Case For Amzn Stock
It’s also worth considering some counterarguments to the bullish thesis.
AMZN Quarterly Operating Income
The first is that even though Amazon’s P/E ratio decreased in the past year, it hasn’t all been due to higher operating income. While Amazon massively increased operating income starting around 2017, that trend reversed in 2021. Amazon’s operating income last quarter was lower than the comparable quarter in pre-pandemic 2019, which is really abysmal. Amazon also posted negative free cash flow in 2021, after years of encouraging investors to look at cash flow rather than the bottom line.
This decline has been due to e-commerce rather than cloud, as Amazon stated in its recent earnings call that it built too much fulfillment capacity, harming the bottom line with unnecessary costs. This type of issue should be temporary, and it’s been an industry-wide issue to some extent Target recently sold off harshly after admitting that it had too much inventory built up in more cyclical products. Other e-commerce companies like Shopify have seen their share prices crash even more than Amazon’s. Even so, persistent issues like this make it difficult to trust new CEO Andy Jassy, as the company has yet to post a clean earnings beat since he took over:
Aside from these recent struggles, I previously covered other bearish arguments against Amazon such as its lack of shareholder friendly policies and its bad reputation with small businesses.
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