Is Amazon.com, Inc. (AMZN) A Good Stock To Buy Today?

Is Amazon.com, Inc. (AMZN) A Good Stock To Buy Today? Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period. However, hedge funds’ stock picks historically outperformed the market by a decent margin.

This year isn’t an exception. We track more than 800 hedge funds and measure the performance of their long stock picks in real time. We created a giant $1.6 trillion portfolio of hedge funds’ long positions. It is true that hedge funds had some high profile losses this year that are “celebrated” by the media but their stock picks actually outperformed the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first 2 months of this year. So, on average it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Amazon.

Amazon.com, Inc. (NASDAQ:AMZN) was in 141 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 113 hedge funds in our database with AMZN positions at the end of the previous quarter. Amazon was one of the 10 most popular stocks among hedge funds duirng both quarters. The stock returned 32% during the fourth quarter but gave back most of these gains during the first two months of this year after losing more than 18%. Is Amazon overpriced or does the recent decline in stock price present an opportunity to buy the stock? Let’s first take a look at why hedge funds love the stock so much. Billionaire hedge fund manager Stan Druckenmiller mentioned Amazon in November at the Dealbook Conference. Here is what he said:

“I love Amazon. Because they’re investing their future. Bezos is a serial monopolist. He’s come up with this AWS, ok, which is absolutely exploding. I don’t know how many people here are small businessmen and women. If you’re starting a business today, you don’t need a technical department, you don’t need a back-office. You can use AWS. By the way, it’s just ripping to shreds the 10 or 15 consultant you have from IBM on your firm, that you used to need because now you’re going into the cloud. And in retail they were 22% of U.S. sales growth this year of retail, one company. And he’s just sitting there with narrow margins and when he has enough share of market, whenever he wants he can get those margins up.”

Not all hedge fund managers are bullish on the stock though. Another billionaire hedge fund manager, David Einhorn, has been shorting Amazon.

We don’t know the exact details of Einhorn’s short Amazon thesis, but we know that it is based on valuation. “Analysts strain to justify ever high prices” for Amazon he said in his annual investor conference back in January. However, he also disclosed that this short position dragged down his fund’s performance 1.3 percentage points in 2015. With all of this in mind, we’re going to view the key action regarding Amazon.com, Inc. (NASDAQ:AMZN).

Hedge fund activity in Amazon.com, Inc. (NASDAQ:AMZN)

Heading into 2016, a total of 141 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chase Coleman’s Tiger Global Management has the most valuable position in Amazon.com, Inc. (NASDAQ:AMZN), worth close to $2.1585 billion, corresponding to 17.4% of its total 13F portfolio. The second largest stake is held by Viking Global, led by another Tuger cub Andreas Halvorsen, holding a $1.7353 billion position; the fund has 6.5% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism encompass Ken Fisher’s Fisher Asset Management, Stephen Mandel’s Lone Pine Capital and Lansdowne Partners.

As one would reasonably expect, key hedge funds have jumped into Amazon.com, Inc. (NASDAQ:AMZN) headfirst. Immersion Capital, managed by Michael Sidhom, initiated the most outsized position in Amazon.com, Inc. (NASDAQ:AMZN). Immersion Capital had $159.7 million invested in the company at the end of the quarter. Eric Mindich’s Eton Park Capital also made a $135.2 million investment in the stock during the quarter. The other funds with brand new AMZN positions are James Dinan’s York Capital Management, James Crichton’s Hitchwood Capital Management, and Christopher James’s Partner Fund Management.

Let’s go over hedge fund activity in other stocks similar to Amazon.com, Inc. (NASDAQ:AMZN). These stocks are General Electric Company (NYSE:GE), Facebook Inc (NASDAQ:FB), Johnson & Johnson (NYSE:JNJ), and Wells Fargo & Co (NYSE:WFC). All of these stocks’ market caps are similar to AMZN’s market cap.

As you can see these stocks had an average of 89.25 hedge funds with bullish positions and the average amount invested in these stocks was $13.3 billion. That figure was $17.3 billion in AMZN’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand General Electric Company (NYSE:GE) is the least popular one with only 54 bullish hedge fund positions. Amazon.com, Inc. (NASDAQ:AMZN) is not the most popular stock in this group but hedge fund interest is still extremely high. We should note that hedge funds’ consensus large-cap picks generated an annual alpha of 2 percentage points in our backtests. This means Amazon has better than 50% chance to outperform the market in the next 3 months. If you aren’t too worried about the volatility, you should consider it at least as a short-term long play.