According to NASDAQ, there are two reasons why Amazon stock could still be a good addition in your portfolio this 2023.
Amazon Stock Under Macroeconomic Conditions
While it is too early to declare that the bear market is finally over, there appears to be light at the end of the tunnel. Inflation is failing while interest rates are currently high. This could push the Federal Reserve to relax its stern monetary policy without causing the US economy to enter a recession, a scenario known as a “soft landing.”
From a novice operational standpoint, a recession could nothing be but a piece of bad news. However, this is a huge opportunity for Amazon because Fed policy influences investors’ willingness to pay premiums for future earnings and cash flow.
Amazon Stock: A Cyclical Business
While Amazon stock appears to be benefiting from market-wide tailwinds, the company’s recent business performance in the fourth quarter of FY 2022 left much to be desired. Net sales increased 9% to $149.2 billion per year, with growth in North American e-commerce and cloud computing offsetting a significant decline in international e-commerce. Net income dropped by 98%, from $14.3 billion to $300 million.
E-commerce and cloud computing are both long-term growth opportunities for Amazon. Management believes that public and private enterprises are still in the early stages of cloud computing adoption.
Amazon also plans to expand its e-commerce platform into new markets in Latin America and Africa in 2023. The company’s size enables it to outperform competitors in the industry through cost efficiencies and network effects.
Amazon stock has a price-to-earnings 68X, which is higher than the S&P 500 average of 22X. However, as a cyclical company, its current earnings do not necessarily reflect its long-term profit potential.
Amazon stock (AMZN -0.07%) has been a roller coaster ride for investors, falling 35% in 2022. Despite short-term difficulties, Amazon stock remains one of the best ways to bet on the long-term growth of e-commerce, and shares remain a good buy for patient investors.
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