We recently published a list of 10 Best Wide Moat Stocks to Invest In. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against other best wide moat stocks to invest in.
Russell Investments continues to monitor and analyze the potential for policy changes in President Trump’s second term in office. In December 2024, the North American Chief Investment Strategist noted 4 areas of focus- i.e., tariffs, immigration, fiscal policy, and deregulation. Let us see what impact tariffs can have on the broader US economy and what should investors do in these uncertain circumstances.
Impact of Tariffs on US
As per Russell Investments, the macroeconomic uncertainty is expected to continue to remain elevated in the near term, while the investors keenly wait to see whether the tariffs get scrapped after the 30-day period. To give a brief context, the US President announced that he and Mexican President Claudia Sheinbaum have decided to delay the imposition of these tariffs for 30 days. Notably, Trump also announced that he has delayed the imposition of tariffs on Canadian goods for 30 days.
If tariffs get implemented, there can be a modest one-time increase in price levels for US consumers, says the investment firm. This might push out marginally when inflation will return to the target range of 2%. However, in the base-case scenario, the firm expects that the US Fed will succeed in returning inflation to 2%. From a growth perspective, while the tariffs might create a modest drag on the US economic activity, the broader economy is expected to avoid a recession.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Should Be the Strategy for Investors?
Saxo Bank A/S believes that investors are required to ignore the noise and remain focused on fundamentals. While short-term volatility remains inevitable, investors need to prioritize long-term growth trends over reactionary trades. Therefore, investing in quality companies having strong domestic revenue, pricing power, and resilient business models is expected to withstand such headwinds. The bank believes that investing in high dividend-paying stocks in defensive sectors such as consumer staples might help mitigate the short-term negative impacts. Furthermore, the focus can be on secular growth themes that have the potential to transcend political cycles.
Elsewhere, Russell Investments opines that investors can benefit from staying disciplined during uncertain times. While the tariffs can adversely impact the broader economic growth, mainly in Mexico and Canada, there is a possibility of central banks and governments stepping in with support to mitigate the impacts of tariffs.
Our Methodology
To list the 10 Best Wide Moat Stocks to Invest In, we scanned through VanEck Morningstar Wide Moat ETF and some online rankings. Next, we chose the stocks that were popular among hedge funds. Finally, the stocks are arranged in the ascending order of their hedge fund sentiments, as of Q3 2024.
At Insider Monkey we are obsessed with 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: 286
Amazon.com, Inc. (NASDAQ:AMZN) possesses a wide economic moat, courtesy of its network effects, cost advantages, intangible assets, and switching costs, says Morningstar. The company continues to disrupt the traditional retail industry, while, at the same time, emerging as the leading infrastructure-as-a-service provider through Amazon Web Services (AWS). The firm also added that Amazon.com, Inc. (NASDAQ:AMZN) has been widening its lead, which is expected to result in economic returns well above the cost of capital. The secular pivot towards e-commerce remains unabated, with the company increasing its market share.
Amazon Prime binds Amazon.com, Inc. (NASDAQ:AMZN)’s e-commerce efforts together, resulting in providing a steady stream of high-margin recurring revenue. In return, consumers enjoy one-day shipping, exclusive video content, and other services, says Morningstar. Therefore, the company builds a healthy circle in which customers and sellers tend to attract each other. Notably, high-margin advertising and AWS continue to grow faster than the corporate average, which is expected to fuel profitability over the years. Through AWS, Amazon.com, Inc. (NASDAQ:AMZN) is one of the leading companies in public cloud services.
The full-stack AI/Cloud offering is well-placed to benefit from a multi-year shift in AI and IT workloads. Tsai Capital, an investment management company, released a Q4 investor letter. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN) (AMZN—Year of First Purchase: 2017) Amazon was founded by Jeff Bezos in his garage in 1994 and today dominates the markets it serves. The company’s e-commerce business is gaining market share, despite its immense size, while its cloud services division, Amazon Web Services (AWS), is by far the leading cloud provider. We estimate that AWS now generates 60-65% of the company’s total operating profits.
Both Amazon retail and AWS benefit from numerous competitive advantages and deliver a high customer value proposition. Rather than leveraging its size to maximize short-term profits, the company follows a scale-economies-shared business model, sharing a generous portion of its margin with the consumer. This creates a flywheel effect that reinforces the company’s ecosystem.
Amazon’s approach of investing heavily in the business today to create shareholder value later masks the company’s underlying earnings power. As consumers continue to shift their spending from in-store purchases to online shopping, and as data continues to migrate from on-premise servers to the cloud, we expect Amazon to grow revenues at a low double-digit rate for at least the next five years and to significantly increase its operating margins.”
Overall, AMZN ranks 1st on our list of best wide moat stocks to invest in. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.
