5 Reasons Amazon is the No. 1 Retailer to Buy
The holidays are upon us, which is exciting news for retailers and traders alike. As sleigh bells ring, so will cash registers.
The holiday shopping season officially kicks off on Nov. 27. Black Friday sales are expected to top $80 billion as 300 million shoppers swoop up deals. Then, sales on Cyber Monday are expected to grow 12%, hitting a record $3 billion.
When all is said and done, U.S. retail sales for November and December are expected to top $855 billion. That would represent a 5.7% increase over last year.
While that’s substantial, zooming in on e-commerce reveals even more impressive growth. According to research firm eMarketer, online sales are projected to grow 13.9% this season.
Of all the e-tailers, Amazon.com (NASDAQ: AMZN) is best positioned to benefit from the holiday buying frenzy.
Here are five reasons why:
1. The Everything Store
If you want mass-produced electronics, Amazon boasts some of the best deals around. If you want one-of-a kind handmade goods, Amazon competes with recently public arts and crafts retailer Etsy (NASDAQ: ETSY).
This week, it was announced Martha Stewart is moving her American Made homemade goods marketplace from eBay (NASDAQ: EBAY) to Amazon’s Handmade marketplace. Her reasoning: Amazon secures her a much bigger audience. “It’s the powerhouse retailer online in the United States,” said Stewart.
Bottom line: Whatever you need, there’s a good chance Amazon carries it.
2. Huge and Growing Subscriber Base
For $99 a year, Amazon Prime subscribers get access to free two-day shipping, on-demand video, music streaming services and a Kindle-sharing library.
While Amazon does not disclose the number of subscribers it has, analysts at RBC Capital Markets estimate there are 50 million U.S. Prime members, with an adoption rate of 40% of customers, up from 25% in 2013.
And that’s very good news for the company. According to Consumer Intelligence Research Partners, Prime members spend $1,500 a year on average — more than double what non-members spend annually. You can bet that spending will continue, if not ramp up, this holiday season.
3. Super Fast Shipping
Part of that will be due to the fact that Amazon is catering to Prime members this season with a special mobile app. During the holiday season, Amazon Prime members ordering through a special mobile app are eligible for two-hour delivery in 20 major U.S. cities. Meanwhile, everyone else can still take advantage of free next-day shipping.
This is a key differentiator for the online retailer. Although eBay offers same-day and one-day shipping, shipping is up to the seller’s discretion, and products can take weeks to arrive. And Wal-Mart’s (NYSE: WMT) competitor to Prime, called Shipping Pass, has gained little traction. The $50-a-year service offers comparatively slow three-day shipping and doesn’t include any of the extra perks offered by Amazon.
4. Bullish Fundamental Outlook
Amazon’s focus on speedy shipping, its loyal Prime subscriber base and its wide array of products are part of the reason sales and earnings are expected to continue to expand steadily. For the all-important holiday quarter, analysts predict earnings will soar 258% year over year to $1.61 per share. And they estimate a 23% jump in sales to $36 billion.
For the full year, they expect sales to increase 21% to $107.2 billion, with earnings coming in at $1.88 per share, up from a loss of $0.52 a year ago. And earnings are expected to triple in 2016 to $5.64 per share.
5. Strong Technical Outlook
With such impressive growth, it’s no wonder the stock has been on a tear. Over the past year, shares have more than doubled.
Since hitting a low in January near $285 — an important support level — the stock has been in a major uptrend.
Shares hit an all-time high just below $676 on Nov. 11. This week, they stabilized around $663 and a small shelf of resistance appears to be forming. However, if AMZN can push through this level, it could surpass its recent all-time high and continue to soar.
With no historical or overhead resistance, shares could potentially hit the most bullish of analysts’ target, which is $800. At current levels, this represents 20% potential returns.
Recommended Trade Setup:
— Place a buy-stop order on AMZN at $664.01
— Set stop-loss at $549.78
— Set price target at $799.95 for a potential 20% gain by Q3 2016
Note: Back in May, a little-known indicator signaled AMZN was a buy, and since then, shares have risen 55%. Now that indicator has flashed a buy signal for 10 new stocks. Find out what they are here.