Amazon.com stock can strengthen your portfolio this year. Here’s why

The retail industry had a mixed holiday season this time as economic uncertainties forced most shoppers to reduce discretionary spending, while companies like Amazon.com, Inc. (NASDAQ: AMZN) attracted customers through discounts and promotional offers. The online marketplace generated record sales in the most recent quarter.

Meanwhile, shares of the eCommerce behemoth often struggled to stay in the three-digit realm after withdrawing from the peak more than a year ago — at one point, they slipped to a multi-year low. While the widespread tech selloff took a toll on the stock, investor sentiment was also hurt by the inflation-induced dip in consumer spending.

A Good Bet

On the positive side, the cheap valuation offers a rare opportunity to own this blue-chip stock. Right now, it is one of the safest investments, with the potential to create solid shareholder value for the long term. While AMZN is priced at a big discount to its estimated value now, it might not remain so for a long time.

The company sees better days ahead as it strives to enhance customer experience through faster delivery, improved merchandising, and various initiatives to drive customers to digital shopping. At the same time, it has been successful in tapping into the growing demand for enterprise cloud services. Prime Video, the company’s fast-growing streaming platform, is witnessing a steady increase in viewership.

Innovation

Initiatives like the launch of robotic systems at fulfillment centers, expansion of Prime facilities, and introduction of virtual health service Amazon Clinic should increase overall efficiency and bring long-term benefits. The management is optimistic about near-term sales performance and predicts a 4-8% growth in first-quarter sales to $121-126 billion.

“This past holiday season, customers came to Amazon for great deals, fast delivery, and our widest-ever selection, bolstered by nearly 2 million third-party seller partners, who sell on Amazon. Enterprise customers continued their multi-decade shift to the cloud. We’re working closely with our AWS teams to thoughtfully identify opportunities to reduce costs and optimize their work. In our worldwide stores business, with the ongoing economic uncertainty, coupled with the continuation of inflationary pressures, customers remain cautious about their spending behavior,” said Amazon’s CFO Brian Olsavsky in a recent statement.

Q4 Outcome

In the fourth quarter, North America sales increased in double-digits, driving up total sales to an all-time high of about $150 billion, which was partially offset by a decline in international sales. In contrast, earnings fell sharply to $0.03 per share, hurt by higher operating expenses. While earnings missed the Street view, sales topped expectations. The company’s cloud business Amazon Web Services continues to be the top-performing segment, with 20% annual sales growth.

Meanwhile, CEO Andy Jassy has laid down an aggressive cost-cutting plan that includes a hiring freeze and large-scale headcount reduction. Recovering from the weakness experienced in the early part of the week, AMZN ended Thursday’s session slightly above $100, after trading higher throughout the session.