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3 Reasons Amazon Is a Buy

By Daniel B. Kline – Apr 4, 2020 at 4:11PM

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Coronavirus has shown just how strong the company is.

Amazon (AMZN -0.54%) has shined during the coronavirus pandemic as Americans have been forced to place added orders for delivery to find the supplies needed to spend an extended period at home. The retailer has had its stumbles -- it has struggled to keep toilet paper, hand sanitizer, and a few other things in stock, for example. For the most part, however, the online leader has demonstrated its strength.

That's good news for shareholders -- and not just during the current crisis, but for the long term. Amazon has shown that it has some clear strengths that it has built over a long period, and the coronavirus pandemic has benefited it in a very clear way.

An Amazon warehouse worker

Amazon will come out of this pandemic stronger. Image source: Amazon.

1. Supply chain

People have begun to expect two-day or faster delivery in nearly all cases. That's why it has been somewhat surprising when Amazon has struggled to get some orders out as fast as it normally does.

The reality is that nobody could have predicted this scenario and planned for the run on toilet paper, cleaning supplies, and basic food items. Under the circumstances, Amazon has performed incredibly well. And while it listed long shipping times for certain orders, many were sent well ahead of planned dates.

Amazon keeps adding capacity, and it's learning lessons from this crisis that will help it during its normal operations.

2. Customer acquisition

Some people who used Amazon lightly or not all in the past had to turn to the retailer when faced with an extended period of being at home. Those people gave Amazon their credit cards -- a big barrier for some people -- and many likely bought annual Prime subscriptions.

It seems very likely that many of these people will remain Amazon customers after the pandemic passes. They may not order as often, but they will probably order.

3. Proof of concept

Why order toilet paper from Amazon when it's not in short supply?  Because toilet paper takes up a lot of room in your grocery cart. The same applies to lots of things. It's simply convenient to get stuff delivered to your door.

Millions of people, of course, knew that, but millions more are learning just how easy it is to order from the platform. In some cases, people may also be learning about items that Amazon sells they never expected it to have.

A bigger online leader

Amazon will emerge on the other side of the coronavirus pandemic in better shape than before. It was already a retail leader with infrastructure that gives it a massive edge over nearly every rival. Now it's all that and even more -- people have come to rely on it. People aren't ordering from Amazon because they have to -- well, most aren't -- they are ordering from it because it's inexpensive, easy, and the selection is incredible.

It's hard to see why that won't remain the case even when it becomes OK to leave the house. Amazon won't replace traditional stores for most people, but it can take over a lot of the buying people do and eliminate the hassle of having to go anywhere or pick anything up.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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