The S&P 500 is roughly 21% above (as of July 5) its recent low reached in October 2022. And consequently, many investors are excited and calling it a new bull market, particularly after a terrible year for stock market participants in 2022.
Amid the renewed optimism, it might seem like numerous businesses stand out as solid long-term investments for your portfolio. But I believe that one rises above the rest as a clear-cut favorite.
If I had to choose only one stock to buy, here’s why it would likely be Amazon (AMZN), without hesitation.
A massive economic moat
Warren Buffett looks for companies with an economic moat protecting them from competitors. These are favorable attributes that keep rivals at bay, while also allowing the business to produce strong financial results for an extended period. Amazon absolutely shines in this department, with multiple factors contributing to its economic moat.
For starters, the tech giant benefits from powerful network effects. And this is apparent in its e-commerce operations. As more buyers come to the site, more merchants are incentivized to show up as well. And the growth of each user group makes Amazon even more valuable to both.
Moreover, Amazon’s popular subscription offering, Prime, gives it other ways to drive network effects. In 2016, founder Jeff Bezos said, “When we win a Golden Globe, it helps us sell more shoes.” Prime can first attract consumers looking for entertaining TV shows and movies, who will then use the service’s free shipping and vast merchandise selection to buy whatever they need.
This makes Amazon’s entire operation akin to a flywheel, where the strength of one individual piece directly or indirectly makes another part of the business stronger. That’s a rare quality to find in the corporate world.
Amazon also stands out when it comes to intangible assets. Most notably, its brand presence. According to Brand Finance, Amazon is the second-most valuable brand in the world, worth $350 billion, behind only Apple.
Another intangible asset Amazon has is data. The company has an incredible ability to collect data, not only on consumers that use Prime or its e-commerce site, but on the merchants using its platform, as well as customers of Amazon Web Services (AWS). And this helps to better inform decision-making around product introductions and marketing campaigns.
With its massive footprint of distribution and fulfillment centers, Amazon’s logistics network provides scale and cost advantages. While its shipping costs have soared, the company is now on par with UPS and FedEx in terms of parcels shipped domestically. And now that it has such a massive in-house logistics operation of warehouses, trucks, and planes, Amazon can leverage its fixed-cost base to lower per-unit shipping costs. This advantage will only grow over time.
Sizable growth potential
To be clear, there’s no denying the fact that macro headwinds have been negatively impacting Amazon, with growth slowing dramatically throughout 2022 and into the first quarter of 2023. But this is still a business that has solid long-term prospects.
Amazon dominates online shopping. But with e-commerce only accounting for 15% of overall retail sales in the U.S., there is a sizable expansionary runway as consumers find more convenience in not shopping at brick-and-mortar stores.
The rise of cloud computing is another tailwind that will benefit the tech titan for a long time. AWS has the top market share globally. The overall industry’s revenue is projected to increase at a compound annual rate of 14% over the next seven years. As the leader, Amazon is positioned to capture a lot of these gains.
With shares currently down 30% from their peak and selling at a reasonable price-to-sales ratio of 2.5, I think buying Amazon stock is a no-brainer decision right now.
— Neil Patel
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Source: The Motley Fool