Inflation or deflation? Economic boom or bust? The kinds of macroeconomic forces acting on the stock market in 2022 are still open for debate. In this scenario of uncertainty, Bryn Mawr Trust’s and CNBC regular Jeff Mills believes that companies with “staying power” and involved in supply chains, cybersecurity and e-commerce are some of the best bets.
Among his top picks in each of these sectors, Mr. Mills likes Amazon stock (AMZN) - Get Amazon.com, Inc. Report. The Seattle-based e-commerce king should improve its market share in 2022, while the stock seems to trade at a reasonable price. Here is why 2022 might be AMZN’s year.
(Read more from the Amazon Maven: Amazon Stock: Expert Sees 25% Gains As Holiday Season Starts)
2021 investment cycle
Jeff Mills believes that Amazon stock trailed the S&P 500 this year due to the company’s current investment cycle. Amazon has been plowing money into physical infrastructure and logistics network, which has been consuming its cash flows. At the same time, sales have fallen below Wall Street's projections, overshadowing the importance of Amazon’s investments.
“The last investment cycle was AWS. It was easier for investors to see the immediate payout there. [It is] a little bit harder this time since the stock has been trading sideways, but I actually think it set the company up really well for this particular holiday season.”
(Read more from the Amazon Maven: Amazon Stock Is A 2022 Top Pick, Says This Bank)
Breakout of significant proportions
“A breakout of pretty significant proportions” is what Mr. Mills believes will happen to Amazon in 2022. His thesis is sustained by the fact that the e-commerce behemoth is not only the most popular marketplace website, but it also owns the largest logistics network in the US. This position of market leadership should ultimately lead to even higher market share.
“The supply crunch that everyone is dealing with right now may actually help Amazon because they’re probably best positioned. They can probably get stuff to people quicker, so I think they can potentially take market share.”
A fair price
In terms of price, Nasdaq author Samuel Smith argues that AMZN seems fairly valued. The company’s EBITDA is estimated to grow around 24% in 2022 and the stock’s EV/EBITDA ratio is at nearly 24x compared to its five-year average of 23x.
We, on the other hand, are a bit more bullish, and see Amazon stock as reasonably (not just fairly) priced. We think that the financial results in 2021 and parts of 2022 mask a much more interesting growth story that even analysts seem to believe in. According to Seeking Alpha, Amazon’s EPS should grow at over 40% annually in 2023 and 2024: plenty to justify a 2022 P/E of “only” 65x, in our opinion.
Wall Street has set a consensus target price of $4,095 which suggests 11% upside. The stock has been hovering around all-time highs, especially after (1) the buzz around Rivian stock (RIVN) - Get Rivian Automotive, Inc. Class A Report and (2) Goldman Sachs’ inclusion of Amazon stock in its top pick list for 2022. Yet, AMZN has consistently failed to reach historical peaks since early July 2021.
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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)