With the S&P 500 and the Nasdaq Composite indexes up by 15% and 29%, respectively, in 2023 (as of Aug. 22), investors might assume that there aren't many attractively valued buying opportunities out there right now. But that's definitely not the case -- even some of the largest businesses are still on sale.
Take Amazon (AMZN 0.56%), whose shares are up 60% this year, handily beating the overall market. Despite that strong performance, they remain 28% off the all-time high they hit in 2021. Moreover, this FAANG company has many favorable qualities that investors should appreciate.
With that being said, here are three must-know reasons that help explain why Amazon is a no-brainer stock to buy right now with $100.
Dominant in multiple industries
Amazon made its name by becoming a popular e-commerce site, going from selling books to selling almost everything. Thanks to its massive (and expanding) logistics footprint, the business is the second-largest retailer in the world. And in the U.S., nearly $2 out of every $5 spent online gets spent on Amazon's platform, according to Statista. It's no surprise that amazon.com is one of the most visited websites in the world.
Amazon is also a leader in the cloud computing industry, with a 32% share of the global cloud infrastructure market. What's remarkable is that this segment started out as a cost center for the business, providing support for the e-commerce operation. The leadership team thought that other businesses would need the same services, and so Amazon Web Services (AWS) was born.
In the last quarter, AWS accounted for 70% of the company's operating income. And it should be a key growth driver in the decade ahead as the market for cloud services is forecast to expand rapidly.
Because of the popularity of its e-commerce marketplace, Amazon also has a budding advertising segment that monetizes the site's traffic. Digital ads generated $10.7 billion in revenue in Q2, up 22% year over, year. Amazon is only behind Alphabet and Meta Platforms domestically in this industry.
Powerful competitive advantages
Investors can have confidence that Amazon won't be derailed by competitors anytime soon. It possesses a wide economic moat based on several advantages. Its powerful brand, its incredible ability to collect data, and its massive scale all feed into its success and make the business stronger over time.
Amazon also benefits from network effects, particularly when it comes to its third-party seller services. By having more merchants on the platform, the site becomes more valuable to shoppers by offering an even wider selection of merchandise. And the more consumers who flock to Amazon to shop, the more inclined merchants are to set up shop on the platform.
All of Amazon's competitive advantages create a flywheel effect. For example, the company might use the data it has collected from its Prime Video viewers to develop new TV series that have high likelihoods of success. Those shows could attract new subscribers to Prime, and these individuals could then end up shopping more often on the e-commerce site. Furthermore, that increased traffic leads to greater ad inventory, another source of revenue.
An attractive valuation
For such a widely followed business that has clear and obvious advantages, Amazon isn't trading at an expensive valuation. The stock currently sells at a price-to-sales ratio of 2.6. That ratio is meaningfully below Amazon's three-, five-, and 10-year average valuations, presenting investors with a worthwhile opportunity to scoop up shares.
