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The 1 FAANG Stock to Buy Hand Over Fist for the Second Half of 2021 (and Beyond)

By Lawrence Rothman, CFA – Dec 28, 2021 at 5:30AM

Key Points

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Among the giants, one company stands a little taller.

Stock market followers will recognize the acronym FAANG, although name changes make it somewhat dated. Facebook recently changed its name to Meta Platforms (META 1.97%). The other companies are Amazon (AMZN 1.26%), Apple (AAPL 1.56%), Netflix (NFLX 2.08%), and Alphabet (GOOG 2.65%) (GOOGL 2.81%).

Each has proven itself a leader in its respective field and has had tremendous profit growth, and share prices have followed suit. However, if I had to pick one company in the group, Amazon would be my choice.

Person talking on a cell phone, with a laptop open.

Image source: Getty Images.

Online retail set to accelerate

When you think about online retail, Amazon is likely the first company that comes to mind. That's because it has rapidly expanded to selling everything imaginable at low prices and with great convenience.

After the pandemic struck, e-commerce sales as a portion of total retail sales accelerated, reaching 15.7% in the second quarter compared to 11% at the end of 2019. Although that slipped a bit to 13% in the third quarter as stores reopened to the public, the latest COVID-19 variant, omicron, could cause governments and businesses to implement restrictions again. Although unfortunate, this development would likely help online sales growth accelerate like it did previously, which would prove beneficial to Amazon.

In 2020, the company's North American sales grew by more than 38% to $236.3 billion, and its international division experienced nearly 40% growth to $104.4 billion.

Prime time

Amazon Prime, the company's popular subscription service, helps boost shopping on the site. For $119 a year, members get fast shipping without an extra delivery charge. It started this year with 150 million paid subscribers, which grew to 200 million in April, the latest figure provided by the company.

Subscribers also get a streaming service with their Prime subscription. Amazon has been boosting content, and the $8.5 billion purchase of MGM Studios will expand its library. This should help it to better compete with other streaming services, such as Netflix and Walt Disney's (DIS 2.07%) Disney+.

Huge profits

Amazon has been a hugely profitable company. For the first nine months of 2020, its operating income grew by nearly 34% to $21.4 billion.

This quarter, management expects operating income to come in at $0 to $3 billion compared to $6.9 billion a year ago. Remember, last year's results reflect higher online shopping due to the pandemic. Plus, like others, Amazon is facing higher supply chain and labor costs.

But management invests for the long haul. This includes expanding capacity that should lead to better product availability than other retailers, allowing Amazon to keep customers happy and loyal.

Plus, Amazon isn't merely an online retail business. Notably, Amazon Web Services (AWS), its cloud-computing business, continues to have promising prospects. The segment's sales grew by more than 36% this year to $44.4 billion. It also had a 29.8% operating margin, much higher than the other two segments' low-single-digit figures. With companies increasingly relying on data, it is in a good position to benefit.

Certainly, investors weren't enamored with Amazon's third-quarter results or fourth-quarter outlook. The stock's 5% gain this year has badly lagged the S&P 500's 25% increase. However, with strong prospects for increased online shopping and AWS' continued rapid growth, this creates a good opportunity to pick up shares right now and for the foreseeable future.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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