The Best Stock To Own in 2024
The S&P 500 has gone straight up so far this year. A cool off period would be healthy but either way cracks are beginning to emerge as there’s a lot going on right now in the world. In recent weeks you see money piling into oil and defense stocks, largely based on geopolitical uncertainties and the powder keg that is the Middle East. Inflation came in hotter than expected for the month of March, the 3 interest rate cuts that were assumed to be a certainty this year now seem less so . Regardless of all this, there is 1 company that is going to continue to dominate no matter what the rest of 2024 entails.
I can think of few better places to wait all this out than Amazon. I’ve written many articles on AMZN 0.00%↑ in the past year and the stock is up 25% in 2024 to the S&P 500’s 8%. Yet I think the stock still has another 50% upside.
Let’s start with interest rates. The high rate environment we find ourselves in, or a return to normalcy after a decade plus of zero interest rate/ ZIRP, depending on who you ask, has decimated many companies across industries. From companies with lots of debt to ones with more discretionary products, many have struggled to grow. Through it all Amazon has continued to grow important business segments double digit percentages quarter after quarter.
Amazon’s revenue for 2023 was $574 billion, up nearly 12% year over year. It can’t be overstated how impressive it is to grow double digits at that scale. Not to mention their faster growing segments: In Q4, advertising grew 26%, AWS and subscription grew 13% each and third-party seller services grew 19%.
It’s not slowing down. Increasingly I want to be in the companies that do well in the bad times as it’s more telling than the ones who perform well in good times.
Here are a couple other immediate benefits to the bottom line.
Amazon has $86 billion in cash on their balance sheet. While all the debt laden companies are paying out a huge chunk in interest expenses, Amazon is earning high interest rates on their cash position.
After largely reinvesting everything over the last 20 years, the company is starting to bear the fruits of their labor and demonstrate they can pull levers to increase profits with relative ease.
Amazon has 230 million prime members. They just introduced an ad free tier on Prime Video for $3. While most won’t pay the fee, this is actually better as the company is projected to make far more from the advertising revenue. Analysts are projecting $1.3 billion in 2024 and $2.3 billion in 2025. Amazon is revolutionizing advertising, they know what you want and will give personalized ads that convert at a higher rate and thus allow them to charge advertisers more.
Their Rivian fleet of electric delivery vans will save them a ton of money on one of their biggest line item expenses: diesel fuel.
These are just a couple small examples. CEO Andy Jassy just released his annual letter to shareholders yesterday in which he outlined the ways the company continues to cut costs, get leaner, while also investing heavily in new innovations like artificial intelligence.
As we look toward 2024 (and beyond), we’re not done lowering our cost to serve. We’ve challenged every closely held belief in our fulfillment network, and reevaluated every part of it, and found several areas where we believe we can lower costs even further while also delivering faster for customers. - Jassy
The company has stated in the past the faster they get items to customers, the more often they shop and the more they spend.
So, regardless of what happens this year, if you think chaos will continue to increase, oil and defense names will continue to run up, but they have already gone up in anticipation. I sleep easy at night with Amazon as one of my largest holdings.