We recently compiled a list of the 10 Best Reddit Stocks To Buy Right Now. In this article, we are going to take a look at where Amazon.com Inc. (NASDAQ:AMZN) stands against the other stocks to buy according to Redditors.
Maintaining balance is essential in the current financial climate as uncertainties loom over both equity and bond markets. Investors are advised to stay informed and seek potential opportunities amid these changes. Recently, discussions have centered around the performance of mega-cap stocks, particularly in a bull market that has seen significant gains. As this bull market approaches its second anniversary, there is optimism regarding the future of AI and its impact on stock performance. Key players in the market are expected to continue driving growth, although at a potentially slower pace than in previous years.
Looking ahead, investors should prepare for a more gradual approach to interest rate cuts and reassess historical expectations regarding market dynamics. The ongoing economic shifts necessitate a diversified investment strategy focused on long-term growth potential, particularly for those new to investing. Emphasizing stocks with solid fundamentals and cash reserves may provide safer opportunities in an evolving landscape. Earlier in October, Malcolm Ethridge, Capital Area Planning Group managing partner, appeared on CNBC to discuss markets, particularly mega-cap stocks. We discussed his opinion in greater detail in our article on the 8 Best Stocks To Buy For Beginners Right Now, here’s an excerpt from it:
“When discussing the resilience of the two-year-old bull market, Ethridge highlighted that rising interest rates were initially expected to negatively impact market performance. However, despite facing historically high rates, the market has thrived. He noted that many leading companies, including some of the MAG7, have substantial cash reserves and are not reliant on borrowing to fund growth. This financial strength allows them to invest in AI technologies without being overly concerned about the Federal Reserve’s policies…
The conversation then shifted to expectations regarding future Fed rate cuts. Ethridge suggested that investors should prepare for a slower pace of rate cuts than previously anticipated. While a 25 basis point cut may occur at the next meeting, he indicated that there could be a prolonged period of stability afterward rather than a rapid series of cuts…”
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Strategies for Hedging and Investment
On October 30, RBC’s Amy Wu Silverman appeared on CNBC and outlined a strategy for investors to hedge risks in the equity markets, through the use of put options. Amy Wu Silverman thinks that investors have gotten long where they need to, and now they’re hedging positions. She provided insights into the current state of the options market, particularly focusing on mega-cap tech stocks, commonly called the MAG7. Silverman noted a stark contrast between H1 2024 and the current market sentiment in the latter half as the market gears up for significant earnings reports this week. In the earlier months, there was a notable exuberance among investors driven by fear of missing out on AI opportunities. This led to a surge in upside call buying. However, as of now, that trend has diminished, indicating that investors have largely established their positions and are now more focused on hedging their investments rather than aggressively pursuing new upside.
Silverman emphasized that while there is a general sense of bullishness surrounding these mega-cap tech names, many investors are seeking protection for their long positions. This protective stance is particularly relevant in a year where AI advancements have significantly influenced market performance. The conversation also highlighted the term “overhang,” which Silverman identified as her word of the day. This concept reflects the uncertainty surrounding upcoming major events, including earnings reports from megacap tech companies, the US presidential election scheduled for November 5, and Federal Open Market Committee (FOMC) meetings. She suggested that this overhang creates a challenging environment for investors as they navigate daily market fluctuations while anticipating future developments.
Silverman pointed out that investors are closely monitoring volatility expectations. A key metric in this regard is the Volatility Risk Premium, which measures how future expectations for volatility compare to actual market movements. Currently, this premium is substantial, indicating that traders expect heightened volatility in response to upcoming data releases and events. There is growing concern among investors about the possibility of not receiving an anticipated Fed rate cut if economic data comes in stronger than expected.
In addition to tech stocks, she discussed the oil market’s volatility amid geopolitical tensions in the Middle East. Silverman noted that there has been an increase in upside hedging related to these geopolitical risks. Investors are trying to determine whether the high volatility risk premium stems from political uncertainties or ongoing geopolitical factors impacting energy markets. To mitigate these risks, she recommended looking at energy proxies such as XOP or XEG in Canada as potential hedges against escalating geopolitical tensions.
Before concluding her remarks, Silverman shared a specific options trading strategy ahead of the election: S&P put spreads for November expiration. This strategy involves purchasing near-the-money put options while selling further out-of-the-money puts. Given the recent rally in the S&P 500 and the multitude of significant events on the horizon, she described this approach as an effective insurance mechanism against potential market downturns while capitalizing on current volatility conditions.
Methodology
We sifted through several threads to compile a list of the top 30 trending stocks. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com Inc. (NASDAQ:AMZN) is an e-commerce giant that sells almost anything you can imagine, from books to electronics to groceries. Beyond shopping, it also has a powerful cloud computing service, Amazon Web Services (AWS), that businesses use to store and process data. Plus, it offers streaming services for movies and TV shows and even makes its own devices like smart speakers and tablets.
The company recently released its Q3 2024 earnings, recording a strong sales improvement of 11.04% as compared to the year-ago period. Total revenue generated was $158.88 billion, with an earnings per share value of $0.43. The North American stores saw a 9% sales increase, while international stores grew by 12%.
There has been impressive growth in its advertising segment particularly, with an 18.8% year-over-year revenue improvement due to a vast customer base, targeted offerings, and ability to measure campaign effectiveness. AWS revenue was also up 19.1%, as the company continues to innovate and develop its stronghold in the cloud computing market.
While consumers are cautious, Amazon.com Inc. (NASDAQ:AMZN) is thriving through a combination of customer-centric strategies, a booming advertising business, and continued dominance in cloud computing with AWS. All of these factors together position this company as a leader in its industry.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
Overall AMZN ranks 1st on our list of the stocks to buy according to Redditors. As we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
