With the Dow Jones Industrial Average (^DJI +1.21%) down over 1,200 points at the time of this writing and the Nasdaq Stock Market down 5.6% in one day, it can be intimidating to think about stocks in general, let alone put new money to work right now. But if you don't need the money right away, times like these are also exciting because they represent buying opportunities to take ownership of some of the stock market's most dynamic names at a discounted level.
A litmus test
One such name that fits the bill is Amazon (AMZN +1.10%).
I often think of Motley Fool founder and CEO Tom Gardner's litmus test that asks, "If a company were to disappear, would people notice it?" Few companies today pass that test more resoundingly than Amazon.
Whether it's reordering laundry detergent when you run out, buying a gift for Mother's Day because you need it fast and you can be reasonably confident that it will show up in two days, or even watching a Major League Baseball game or a children's cartoon, many of us interact with Amazon on a daily basis.
Despite this ubiquity, after an 8% drop today, Amazon is now down 25% over the past month, and it is down almost 40% from its 52-week high. Despite the sell-off, Amazon shareholders have plenty of catalysts to look forward to. The upcoming 20-for-1 stock split in June does not affect the actual value of Amazon, but it will make the stock more accessible to a broader pool of investors, which should spur volume and support the share price.
Image source: Getty Images.
While some investors are less enthusiastic about Amazon's core e-commerce business because they view it as a capital-intensive and lower-margin operation, it is also a fortress that the company has built with high barriers to entry. There are very few companies that would be able to compete with Amazon on this front or replicate the massive infrastructure it has built, so this moat should be durable for years to come.
Amazon Web Services (AWS), the company's high-margin cloud services business that many investors view as the crown jewel of the company, grew revenue by 37% to $18.44 billion in the first quarter of this year compared to Q1 2021, which is remarkable for a business of this size. Many investors don't realize that Amazon also has a growing advertising business that doesn't get nearly enough attention -- ad sales grew 25% year over year to $7.88 billion in Q1, which is a run rate of over $30 billion in revenue for the year. Advertising on Amazon is a particularly attractive position to advertisers because it is a shopping-native platform. Consumers are already coming there with the intent of buying something, so the advertisers are closer to the point of sale.
The company also just announced some exciting news with the launch of Buy With Prime, which will extend the benefits of Amazon Prime to other websites. This is a way that Amazon can leverage the strength of its logistics network and extend its reach with consumers even further. I think this will be a win-win for Amazon and other merchants. I know from my own experience that I would be much more likely to buy something from a different website if I could do so with the same ease that I can on Amazon Prime, and this will be a compelling perk for many consumers.
NASDAQ: AMZN
Key Data Points
Is Amazon a buy?
While seeing a screen full of red tickers in one's portfolio never feels good at the moment, these are opportunities to build positions in some of the world's best companies at substantial discounts.
Amazon has created tremendous value for shareholders over the years, with a gain of 940% over the past decade. The long-term trend is up and to the right, and the current sell-off is a speed bump in the road to growing returns that is inevitable in the stock market over time. Amazon is chugging along with its e-commerce and logistics business, growing revenue in its advertising segments, rolling out promising features like Buy With Prime, and it still has the catalyst of the upcoming stock split ahead.
Amazon looks like a buy at these levels, and I am getting ready to add it to my portfolio.
