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Amazon Stock: Here’s What Investors Should Do In October

Amazon stock struggled in September. The bad news is that, when this happened in the past, October was even worse. So, should investors dump AMZN shares now, or buy ahead of a potential rebound?

Not unlike the rest of the equities market, Amazon stock  (AMZN) - Get Amazon.com, Inc. Report had a rough September. Shares of the Seattle-based cloud and e-commerce giant dipped more than 5% during the month, lagging by a few basis points the performance of the S&P 500.

Today, the Amazon Maven sets aside business fundamentals and looks at historical price movements to understand what Amazon investors should do in October, in the face of weak September returns: buy, sell, or do nothing?

Figure 1: Amazon Prime truck in Los Angeles, CA.

Figure 1: Amazon Prime truck in Los Angeles, CA.

(Read more from the Amazon Maven: What Fire TV Says About Amazon’s Strategy)

Amazon has trended in October

The chart below shows that, over the past 20 years, Amazon stock has produced monthly returns of 2.5% at the median. September has historically been a bit better than other months, with median returns at 3.3%.

On the other hand, October has been a soft month of performance for AMZN shares, at a median loss of -1.3%. In fact, the fourth quarter of the year has been seasonally the weakest for Amazon stock. This is probably the case because the excitement over the performance of Amazon’s e-commerce business during the late-year shopping season fizzles through December.

Figure 2: Amazon stock median returns over past 20 years.

Figure 2: Amazon stock median returns over past 20 years.

The fourth bar above tells an interesting story that caught me by surprise. While Amazon’s performance tends to be poor in October, it is substantially more so when followed by a loss in September. The fifth bar above reinforces the idea: October tends to be better when September produces a gain.

What this means is that, historically, AMZN has trended in October, consistently with the share price movements in September, rather than returned to a mean. Of course, this could be merely a coincidence. But if not, it may be an indication that the month that starts today could be challenging again for Amazon investors.

What to do in October?

Having said the above, should investors dump Amazon shares, in fear that the next 30 days of returns will be at least as bad as the last 30? I would say “not so fast”.

To be clear, the data above seems to suggest that, in the near term, AMZN shares could continue to struggle. But I think that investors should look past the performance of the stock in the next few weeks and focus instead on the long-term story.

Regarding price movements alone, I have explained that Amazon has historically produced better returns off pullbacks. The further the stock digs into correction territory – it is currently 12% off the early July all-time highs – the more investors should be compelled to buy. See chart below.

Figure 3: Median one-year return on AMZN.

Figure 3: Median one-year return on AMZN.

Regarding business fundamentals, it is hard to imagine Amazon losing its position of leadership in the two fast-growing industries that it operates in: e-commerce and cloud infrastructure. This being the case, think about the stock’s valuation relative to 2025 EPS estimates: the 2025 forward P/E of 19.5 times is very low for a stock of Amazon’s quality.

For the reasons above, and despite the short-term risks, I believe that buying AMZN now and holding it for at least five years or so might make sense.

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September was a rough month for Amazon stock and the rest of the equities market. What should you do about AMZN in October?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)