Fortunately, you don't have to limit the number of stocks in your portfolio. You can choose as many stocks that meet your criteria as you can afford to buy. In fact, taking such steps to build a diversified portfolio has certain advantages.
However, if you were forced to pick just one company to buy, you would undoubtedly choose wisely. Doing this exercise forces you to narrow your investment focus to high-quality companies. If I could only own one stock, it would be Amazon (AMZN 1.30%).
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A dominant company
When people think about Amazon, its retail operations come to mind. After all, it sells everything imaginable on its online platform, and has expanded into physical stores. Putting the customer at the center led to its focus on convenience, low prices, and fast delivery. These have served the customer, and subsequently, the company, well. These factors help the company dominate a market, like apparel or food, once it enters the fray in a meaningful way.
There's Amazon's ever-popular Prime subscription service that includes free delivery plus a streaming service as part of the fee. It also hosts Prime Day, an event so large that it rivals major shopping events such as Cyber Monday. This year, it pulled off another successful two-day shopping event.
There is also its higher-margin segment Amazon Web Services (AWS), the company's cloud-computing business. In the first quarter, AWS' sales grew by 32% to $13.5 billion while its operating margin expanded to 30.8% from the year-ago 30.1%.
The days when Amazon was expanding into various areas, growing revenue but widening losses, have begun to dwindle. Last year, revenue was $386.1 billion, nearly triple 2016's $136 billion. During that time, operating income went from $4.2 billion to $22.9 billion.
Moving forward
Proving it wasn't merely the pandemic that boosted last year's results, first-quarter 2021 sales rose by 44% to $108.5 billion. This helped operating income more than double to $8.9 billion.
Management doesn't expect the revenue and earnings machine to stop anytime soon. For the second quarter, it is calling for sales to increase by 27% to $113 billion and operating income to grow from $5.8 billion to $6.2 billion, the midpoint of management's range.
Amazon isn't content to sit still, either. In May, the company announced an $8.5 billion deal to acquire MGM Studios. This gives it access to a large film library that should boost its Prime streaming service and help it compete with the likes of Netflix and Walt Disney's Disney+.
Of course, the stock price reflects the company's tremendous success. Over the last three years, Amazon's stock gained 104% compared to the S&P 500's 56% appreciation.
For long-term investors, with Amazon's strong retail operations and AWS business, this dominant company is one stock that promises continued strong gains.
