I’m not a long term fan of big tech stocks. Earlier this year, I boldly argued that big tech stocks are dead, meta (meta), alphabet (goog, Google), NVIDIA (NVDA), When Amazon (AMZN).
All of these stocks have fallen more than 20% since then.
But it was then – And this is now.
At the time, Big Tech stocks traded at fully priced high valuations and were still beloved as unstoppable growth giants.
But now we have a completely different setup.
Big tech stocks crash. Once loved, they are now hated. Once unstoppable, now vulnerable. Previously, they traded at high valuations that set the perfect price. And now they’re trading at cheap valuations with essentially zero growth.
Yet many of these companies still represent some of the biggest, most successful, and most profitable companies that have ever existed.
Now is the time to buy big tech stocks. That’s what you do to long-term winners. If they are overrated and underrated, sell them. Buy when they are underrated and underrated.
Big tech stocks are currently undervalued and undervalued. yes, buy this dip.
One big tech stock that is particularly bullish here is Amazon stock.
Amazon is still Amazon
I’ll take a wild guess and say that almost every article I’ve read about Amazon lately says its cloud business is “slowing down rapidly” and its guidance was for a “terrible” or “terrifying” third quarter. intend to. ugly. “
That’s the story the mainstream media decided to run with – But it’s far from the truth.
Amazon’s quarter wasn’t terrible or horrible. Yes, revenue fell short of expectations and cloud business slowed progressively. However, its cloud business is still growing at a 28% year-over-year pace. And it slowed down to match the cloud slowdown at Alphabet. microsoft (MSFTMore) – Amazon Web Services will not lose market share. The cloud industry is experiencing temporary cyclical slowdowns that will reverse course as the economy improves.
No worries there.
Advertising, on the other hand, actually accelerated to 30% growth in the quarter. This is very impressive in the context of Meta and Alphabet’s YouTube division reporting negative growth in ad revenue. Amazon’s advertising business clearly has a large market share.
The online store business returned to growth after three consecutive quarters of contraction due to severe pandemic measures. The physical store business continues to expand steadily.
To be sure, margins have been squeezed and overall revenue growth has slowed. But that’s almost entirely due to FX headwinds, which could weaken in the coming quarters.
So, all in all, Amazon is still the leader in the long-term growth cloud industry. Gaining market share in the long-term growing digital advertising industry. And the giant continues to successfully defend its throne in the long-term growth e-commerce business. Amazon continues to be a corporate giant.
When a giant like this goes on sale, it’s time to buy. Finally out of stock on Amazon.
Bought this dip.
Amazon stock is cheap
After yesterday’s plunge, Amazon’s stock has fallen sharply – Cheap enough to buy dips now.
The stock is trading at trailing sales of about 1.8x, more than two standard deviations below the stock’s five-year average sales multiple. It’s also the lowest valuation multiple for a stock since 2015 – Previous The company’s cloud business caught fire and the company became consistently profitable.
That multiple is too low for this stock. To explain why, let’s model our business for five years.
Amazon’s online retail business could grow at a fairly steady 10% annual clip over the next few years. Our brick and mortar business is growing at about 5% annually. The advertising business is likely to grow by about 20% annually, representing an increase in market share in a growth industry of 10% to 15%. Also, the cloud business could grow by about 25% annually, in line with market estimates of cloud spending growth.
Overall, this is a company that clearly sees mid-teens revenue growth over the next five years. With high-margin advertising and cloud businesses making up a large portion of sales, his operating margin has room to grow to 10%. Doing the math based on these projections reveals that by 2027 Amazon could easily earn him about $8 per share.
Slap a simple 20x forward earnings multiple on top of that. This means that the price target for Amazon stock in 2026 is $160. 10% annual discount. The target price for 2022 is around $110.
Amazon stock today trades at around $100. Admittedly, it doesn’t go much below $110. But quality companies like Amazon rarely go below fair value. When they do, you simply have to take advantage of it.
So do yourself a favor and Buy this dip with confidence.
The last word
What’s happening right now with Amazon stock is a microcosm of what’s happening across the stock market.
Cyclical fears related to a potential recession have crushed the stock prices of dozens of blue chip stocks with rising earnings, earnings and cash flow in this 2022 bear market.
This happens all the time. About once every ten years, investors start worrying about a potential recession. High-quality stocks crash in price, but their earnings, earnings, and cash flow continue to grow. Investors who buy these stock plunges end up making a ton of money.
This time is no different. Investors buying crushed quality stock declines in 2022 will make tons of money in 2023 and 2024. It’s that simple.
Amazon stock is one such investment. But that’s not all.
In fact, we have developed a quantification system to help identify the best strains to purchase to take advantage of this phenomenon.
Find out more about that system before the stock price soars.
As of the issuance date, Luke Lango did not have any positions (directly or indirectly) in the securities referenced in this article.
