Tech stocks continue to appreciate regardless of any ebb and flow in the COVID-19 backdrop, particularly with the delta variant taking a foothold in many swaths of the world. Conspicuously missing from this impressive bull market in the technology cohort is Amazon (AMZN). Technology underpins the stay-at-home economy and the so-called back to normal economy; this is especially true regarding Amazon. Now more than ever, technology serves an integral part of every slice of the economy as these stocks have remained strong despite the massive rotation into value stocks throughout 2021. Stocks such as Apple, Microsoft, Google, and the Invesco QQQ Trust have witnessed massive appreciation thus far in 2021. A potential gem in this cohort lies with Amazon as this stock has not participated at all in the 2021 rally and essentially flat year-to-date. Amazon has been beaten down since reporting its most recent earnings and incorrectly correlated with only the stay-at-home economy plays. Amazon presents value at these reduced levels and looks like a compelling buy for long-term investors.
Pricing Power: The Value Rotation and Roaring Tech
The market has witnessed a massive sea change as the large-scale vaccination efforts in the US are coming to fruition, albeit risks remain with the delta variant. The Dow Jones, S&P 500, and Nasdaq have rallied to all-time highs while recovery and value names have recaptured more than lost market capitalization due to the COVID-19 impact. Meanwhile, many technology stocks that powered the market higher in the initial stages of this post-COVID-19 rally stalled out early in 2021 to now rip higher as well. Now, tech participation has been a major driver to propel the markets even higher.
Pricing power is a major theme for the technology cohort. These technology companies have evolved their business models to a subscription-based revenue service stream. The recent price hikes by Microsoft for Windows and subsequent move higher demonstrate the pricing power these companies possess to raise prices that consumers will pay. Netflix has also pushed through a series of price hikes over the years. Apple has done the same for the app store, iPhones, and Apple services. Amazon (AMZN) could easily follow suit and increase the membership pricing for Amazon Prime if they decided to go that route. As these products and services are indispensable, consumers will be willing to pay extra over the lifetime of the products hence the pricing power.
An Amazon Gem?
Amazon’s stock has appreciated next to nothing in 2021 in the backdrop to massive gains across the board and, more specifically, the tech cohort. Currently, Amazon is on par or cheaper than its counterparts, MSFT, AAPL, GOOGL, and NFLX. When looking at the PEG ratio (a metric that combines P/E and growth), AMZN is relatively low at 1.56 with MSFT, AAPL, GOOGL, and NFLX with PEG ratios of 2.48, 1.48, 1.22, and 1.32, respectively. Amazon is right there with the pack and reasonably valued considering its growth and has recently posted three consecutive quarters with revenue of over $100 billion. Amazon’s anemic appreciation thus far in 2021 is incorrectly correlated to the COVID-19 induced stay-at-home economy. Amazon thrives in any economic stage, and regardless of the COVID backdrop, Amazon is there powering enterprise systems and the consumer alike.
Summary
The tech cohort of MSFT, AAPL, GOOGL, NFLX, and the Invesco QQQ Trust has been at the core of these markets, powering higher. Conspicuously missing from this impressive bull market in the technology cohort is Amazon. Amazon’s stock has appreciated next to nothing in 2021 in the backdrop to massive gains across the board and, more specifically, in technology. Pricing power has been a major theme for these companies as they have evolved their business models to a subscription-based revenue service stream. The price hikes by Microsoft, Netflix, and Apple over the years demonstrate this pricing power. Amazon could easily follow suit and increase the membership pricing for Amazon Prime. All these large-cap growth companies are growing at a double-digit clip, possess fantastic balance sheets, and putting up consistent earnings. Amazon (AMZN) looks like a gem when looking at its steep drop after its most recent earning, current valuation, and the fact that the stock has not appreciated at all in 2021.
Noah Kiedrowski
INO.com Contributor
Disclosure: The author holds shares in AAL, AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY and USO. However, he may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.
Sorry to have to say that from my chart analysis AMZN has seen its high. From its Wave (iii) high 3552,25 on 9.04.2020 and from Wave (iv) 2871 it has completed a clear ending diagonal high 3773,08.
Long-term chart indicates Wave 3 ended at 2050.50 on 9.28.2018 corrected to 1307 for Wave 4 on 12/31/2018 from which the powerful vertical move up to current highs were made. This call has nothing to say about AMZN brilliant fundamentals as seen currently. Chart analysis concludes the high has been made, Any short sales can be protected by usual technical methods limiting loss if wrong. Perhaps this forecast is saying something about the economy about to have a cyclical or even secular turn down.