Who wants to be a millionaire? Apparently anyone who invested $1,000 in Amazon (AMZN, Financial) in 1997. If you invested in a little over $1,000 worth of Amazon shares in 1997, you would have a position worth $1 million today.
If you bought one share of Amazon when it went public in May 1997, you would have spent just $1.50. Today, that share is worth $1,405. That is close to a 1,000 times return. Compared to the broader market, that is staggering. For context, the Dow Jones Industrial Average’s return over that same period was just over 3 times. So Amazon has done 333 times better than the market generally. Certainly an enviable track record.
Today, Amazon is seemingly everywhere. You would be hard pressed to find someone whose life is not in some way affected by the internet behemoth. Its products and services speak for themselves, and there is distinct value in everything with the Amazon stamp.
As potential stockholders, we see significant potential value within Amazon, even if its price-earnings ratio is far from value territory. The long-term investment thesis, however, will have to wait for a follow-up article later this week. Today, we will be addressing shorter-term drivers that could create a trading opportunity.
Trump's Twitter tirade
Of late, founder Jeff Bezos’ star power has slightly imperiled Amazon. Bezos has become a target of the president of the United States. Bezos purchased The Washington Post in 2012. The paper has been particularly critical of the president and has broken many of the stories and scandals that have plagued Trump’s beleaguered administration from the beginning.
Bezos’ ownership of the newspaper is entirely separate, legally speaking, from his role at Amazon. Regardless, that has not stopped Trump and his media surrogates from excoriating Bezos and Amazon, conflating the ownership and agendas of the internet giant and the famous newspaper.
The bully pulpit spooks the market
Trump has seen no problem in conflating Amazon, The Washington Post and Bezos, shooting off several different tweets (his favorite way of communicating his vitriol) criticizing Amazon for supposedly cheating the American taxpayers by underpaying the U.S. Postal Service for package delivery. This has been widely debunked as false, but it has not stopped the tirade of attacks.
The market has taken notice of Trump’s attacks, which has caused quite a bit of worry. Amazon’s stock took a nosedive last week, falling around 15% from its previous highs. Shares have since recovered slightly, though not to their previous levels. Amazon is currently trading about 10% lower from the pre-tweet high.
A trading opportunity in the offering?
Now, a conservative investor might question the wisdom of buying a stock that is dropping and under vicious attack from the leader of the free world. However, it is far from a crazy proposition.
Indeed, Trump’s tweets are helping make Amazon a comparative bargain at its current price. While further Twitter attacks could continue to depress the stock, we do not see a circumstance under which the Trump administration could seriously or permanently hurt Amazon. Can he cause momentary pain, though? Absolutely.
The important point, then, is this: Without the tweets, would Amazon’s stock be taking such a bludgeoning? Almost certainly not. The market still sees tremendous value in Amazon and we believe now is a time where taking a position could yield substantial short-term gains. Nothing in Amazon’s growth story has changed, and Trump is unlikely to waste his limited political capital going beyond his baleful rhetoric to take on Amazon in the courts or through regulatory action.
The market is overreacting to this particular spat. Once it realizes there is a lot more bark than bite, we should expect to see price appreciation back to the recent highs.
Disclosure: I/We own no stocks discussed in this article.
(This article was co-authored by Clyde William Engle Jr. Engle is an analyst with Almington Capital.)
