You can easily find numerous predictions online that a new bull market is coming. I personally don't expect we'll see the stock market surge in the near term. Warren Buffett doesn't seem to think a bull market is imminent, either.
However, you can rest assured that there will be a new bull market on the way -- at some point. It's not too soon to begin planning your investment strategy for the eventual and inevitable stock market comeback. If you're looking for a surefire winner in the next bull market, here's a compelling case to buy Amazon (AMZN -1.14%) stock.
Learning from the past
You've probably heard the old saying that "history doesn't repeat itself" more times than you can count. While it's true, the adage shouldn't be construed to mean that we can't learn from the past to gain a better understanding of how the future might unfold. I think it's helpful to look at how Amazon stock has performed in previous bull markets.
Amazon conducted its initial public offering (IPO) in the midst of the dot-com boom. The chart below shows how the stock performed as compared to the S&P 500 from its IPO in 1997 through the end of 1999.
To say that Amazon outperformed the S&P during the heady dot-com bull market is an understatement. However, Amazon (like many other tech stocks) began to decline significantly well before the S&P 500 entered into a bear market.
But the e-commerce stock started to rally well in advance of the S&P's next bull market, too. Amazon again trounced the S&P 500 in the bull market that began in late 2002.
When the bear market associated with the Great Recession began, Amazon stock began to fall before the S&P did and plunged much more deeply. As it did in the previous cycle, though, Amazon's shares rebounded sooner than the major index. The stock also delivered a much greater gain during the subsequent 11-year bull market.
Likely implications for the future
There's been a clear pattern for Amazon stock in the past. It falls well before the S&P 500 enters a bear market. It begins to rebound well before the S&P does. And it rises a lot more than the index does in the following bull market.
Maybe Amazon will break this cycle in the next bull market. But is there any reason to expect that it will? I don't think so.
Some might point out that, unlike in the past, the company's growth is slowing. However, the reasons why Amazon's growth is slowing appear to be primarily related to the highest inflation rates in four decades. If you believe that the next bull market will be accompanied by lower inflation (which seems to be a good bet), Amazon's biggest current headwinds shouldn't be so problematic.
The reality is that Amazon still has a huge competitive moat. No other player comes close to beating Amazon in e-commerce. The company's brand and infrastructure are simply unmatched. Amazon also reigns as the leader in the cloud-hosting market, a position that it doesn't appear likely to relinquish anytime soon.
Growth opportunities for Amazon are easy to find. E-commerce only made up 14.1% of total retail sales in the U.S. in the third quarter of 2022. There's more room to run for the cloud-hosting market, especially as artificial intelligence systems advance in capabilities. Amazon's digital advertising business is growing by leaps and bounds. Don't forget new markets, notably including healthcare.
No time like the present
One reason why Amazon stock has beaten the S&P 500 in bull markets is that it gets beaten down a lot more in bear markets. That's exactly what has happened this time around.
But investors should recognize that Amazon stock has never been this cheap -- at least not based on share price-to-projected free cash flow. The last time Amazon's shares were down this much from the previous high was in early 2009. And we know what happened afterward.
No one knows for sure when a new bull market is coming. Make no mistake, though, the stock market will roar again. When it does, Amazon should be a surefire winner.
