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While most investors are hunting high yields, I prefer to put my cash into stocks that I believe will be successful for many years to come. Today's greatest companies weren't built overnight. Put to the test, (Nasdaq: AMZN  ) teaches us not to underestimate the value of long-term thinking. Here's why I think the stock is a buy today.

From books to bucks
The world's largest online retailer, Amazon is just getting started. At first glance, it may seem that the company's going in too many directions at once. But take a closer look and you'll see a lineup of innovative businesses ready to pop.

Amazon's come a long way from its days selling books online. In its latest quarter, Amazon failed to meet Wall Street's inflated expectations, but according to comScore, the e-tailer's growth more than doubled that of the broader market during the period.

Online shoppers in the U.S. will spend an estimated $327 billion in 2016, according to Forrester Research -- that's a 62% increase from $202 billion a year ago. Amazon's core business should continue to benefit from its lead position in this evolving e-commerce space. Meanwhile, I expect the company's Prime service to fuel future growth as well.

Amazon Prime is the company's gateway drug. The program entices customers to spend more (and more frequently) by offering free two-day shipping on an unlimited number of deliveries for just $79 a year. True, Amazon Prime is currently a drain on the company's balance sheet. However, the program is an investment in the e-tailer's future that will pay off down the road. In 2011, it expanded Prime to include unlimited streaming videos. To top things off, each of Amazon's new Kindle Fire tablets come with a free Prime trial -- hook, line, and sinker.

Amazon attracts hundreds of thousands of customers to its website every day. However, the stock's been dumped lately on worries that the business is burning through cash too quickly. Now, I'd agree if Amazon were blowing money on shoddy products or questionable acquisitions -- but that's not the case.

Not unlike Apple (Nasdaq: AAPL  ) , the e-tailer is pouring cash into its massive media ecosystem. Apple's iTunes creates a network effect for the Mac maker that helps keep customers loyal to its brand. Similarly, Amazon's cloud lets customers download apps, songs, or books, and stream movies to their devices. Because these items are then stored in the cloud, users must keep using Amazon to access those purchases in the future.

By heavily investing in its infrastructure, Amazon is making the decision to value market share over short-term profit gains. This strategy will help the e-tailer triumph over competitors in the future. In my opinion, the stock is a buy today because it will only continue to climb higher from here.   

Too expensive?
Shares trade around $180, but don't let that fool you into thinking it's overvalued. There's no denying that Amazon's stock is expensive at roughly 67 times its forward earnings. But that's because the company is playing for the long haul.

There's also no doubt that Amazon is a volatile stock. Therefore, investors who are trying to time the market are better off sitting this one out. If you can invest for the next three to eight years, Amazon is a winning bet. Otherwise, follow my lead and add the stock to Motley Fool CAPS with a five year outperform rating.

Fool contributor Tamara Rutter owns shares of and Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing ideas. The Motley Fool owns shares of Apple and Motley Fool newsletter services have recommended buying shares of Apple and, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2012, at 9:51 PM, accelerando wrote:

    This is really, really sad. Perhaps the last piece I will ever read on MF. What was once, beyond doubt, the greatest source of real information about investing has become, simply, a place for folks to tout their positions in various equities.

    Amzn is, almost certainly, the worst possible large company investment out there. It's business model is, essentially, to make billions for its founders and screw retail investors. There is no, and I mean no possible way for it to grow into it's truly ridiculous bubble era 80x earnings valuation. It can only make money (someday) by raising prices. And yes, old people will buy from the Amazon brand, even if they raise prices a bit. But young people won't. No way -- anyone under around 40 shops the net by using bots that find the cheapest price for things. They could care less about e-tailer brand loyalty.

    And, of course, amzn management care only about the share price. So they will continue to 'grow' the top line by sacrificing the bottom line -- in essence making their entire store a loss leader. Knowing full well that they can never turn their size into profit because all e-commerce is ruthlessly price sensitive.

    And anyone with any sense knows this. But people tout bad investments every day for a variety of reasons and lately MF has become one of the biggest bad investment touts around

  • Report this Comment On March 14, 2012, at 12:00 AM, meverton1 wrote:

    Do the math.

    Current Price = $184. Assume a 10% annual return concurrent with risk. Price of the stock in ten years: $477. At that point, assume a 15 P/E concurrent with a mature company. 2022 EPS = $31.80. Current estimated EPS for the coming year is $1.29.

    Growing $1.29 to $31.80 in 9 years implies a compound annual growth rate of 43%. This is a big company already--buying into AMZN at this price level says that you believe this kind of growth is sustainable.

    Note that the projected analyst 5-year growth rate is only 30%--likely lower as you extend out to 10 years. Assuming these numbers are close to correct, you're underperforming 13% a year.

    OK--10% growth too rich? You can play with the numbers--say you are willing to take a 7% annual return for a risky stock. That brings the annual growth rate all the way down to 38.5% over the next nine years.

    AMZN is a great company--no doubt. But its stock price is expensive. In contrast to the article above, you might actually be better off in the short term...if you are in this company for the long haul, look out below. Don't know when but gravity will catch surely up and it could be truly viscious--a 50% drop in share price puts you at a 20% growth rate--probably realistic for a $63B revenue stream.

    Good investing.

  • Report this Comment On March 14, 2012, at 12:12 AM, rpjrugby wrote:

    The author is trying to imply that Amazon can compete in digital media and tablet space with Apple, Google (Android), and soon to be Microsoft with Windows 8. Barring digital book sales, that is laughable. Kindle is built on Android, you think google will allow them to innovate as much as their own tablet line? You think either AMZN or GOOG are in a winning battle with AAPL? AMZN doesn't have a smartphone or a full-fledged tablet to warrant platform loyalty and digital purchases where AAPL, GOOG (and MSFT soon) will. Not to mention within a year we will see a cheaper iPad Mini at 7.5 inches blowing kindle off the map. Moving on.

    The author also acknowledges the drain that Prime is putting on Amazon's balance sheet, but offers no viable way out for Amazon, since there is none. They can 1) raise prices for Prime and/or products or 2) get rid of the service entirely. Amazon's revenues are already inflated by Prime despite it costing them money and being reflected in their profit drops. Either of the above options will undoubtedly drop their revenue stream from its inflated state now.

    Also, I agree with accelerando on the non-existence of etailer loyalty. But I do admit that Prime is an attractive option for students, but nonetheless, costs AMZN money to run it. So, good for students, bad for AMZN.

  • Report this Comment On March 14, 2012, at 7:45 AM, foolindeed1 wrote:

    Once again, "independent" advice from Fools (disclamer: Fool's is heavily invested in Amazon stock.) Let the fox guard the chickens...

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