Let me be clear: Owning more than just one stock is essential. Indeed, diversification alone can prevent some of the worst blunders for the average investor.
However, just for a moment, let's contemplate a scenario where an investor must, for whatever reason, own no more than a single stock. What should they choose?
In my opinion, there's one name that stands out: Amazon (AMZN -1.07%). Here's why.
Image source: Getty Images.
Amazon's massive investment cycle is drawing to a close
The COVID pandemic was a severe jolt to the world economy, and as a result, many corporations shifted gears in a stunning fashion. For Amazon, the pandemic created a boom in demand. As a result, the company ramped up capital expenditures (capex). These purchases of buildings, vehicles, and equipment were meant to cope with the staggering e-commerce demand in light of pandemic social-distancing protocols.
However, as the pandemic waned, these investments ate away at Amazon's free cash flow, lowering it from $27 billion in 2020 to almost -$30 billion in 2022.
At any rate, CEO Andy Jassy has made it clear: Amazon is scaling back. Over the last 12 months, capex spending has fallen from $66 billion to $59 billion as Amazon closed or canceled nearly 100 construction projects.
Amazon's cost-cutting has paid off
In addition to reducing capex, Jassy is also reducing costs in a bid to increase Amazon's profitability. For years, Amazon's total head count marched higher without hesitation, and during the pandemic, total employment truly ballooned. Yet, this year, Amazon's head count decreased for the first time in at least a decade.
AMZN Total Employees (Annual) data by YCharts
As a result, profits are up. In its most recent quarter (the three months ending on June 29), Amazon blew away expectations. Highlights included the following:
- Earnings per share (EPS) of $0.65/share, nearly double consensus estimates.
- Operating margin increased to 5.7%, the highest since 2021.
- Free cash flow of $3 billion, the first positive free cash flow figure since 2021.
- Raised guidance for third-quarter revenue to be between $138 billion and $143 billion, which came in above analysts' prior forecasts.
On top of all that, Amazon didn't sacrifice growth. Quarterly revenue increased 11% from a year earlier, thanks to the company's cloud segment, Amazon Web Services (AWS), and its advertising segment. Both units continue to grow faster than the company as a whole, with AWS recording 12% year-over-year growth and advertising growing at a blistering 22% rate.
Why Amazon is a buy now
In short, Amazon gives investors a little dash of everything they need. It has growth, profits, scale, and solid management.
Moreover, its diverse business segments range from e-commerce and entertainment to cloud computing and digital advertising. That variety means the company can withstand shocks in one sector and keep chugging along.
To sum up, no investor should put all their eggs in one basket and only own one stock. But if I were forced to, the one I'd own would be Amazon.
