Amazon Stock: Is It A Buy Amid Epic Battle With Walmart?

Amazon (AMZN) plans to build its first large-format retail stores, making a new foray into physical outlets and stepping up its battle against Walmart (WMT). Is Amazon stock a buy?


Amazon’s 30,000-square-foot stores, which will debut in California and Ohio, are less than one-third the size of Walmart’s conventional outlets. They’re about one-sixth the size of Walmart Supercenter stores.

Walmart, the behemoth of brick-and-mortar discount stores, is dueling Amazon, the giant of online shopping, in a battle over the future of retail, e-commerce and grocery shopping.

Much work remains for either company to win the Amazon vs. Walmart battle. Walmart needs to expand online operations while also managing 11,500 stores across 28 countries, of which 4,743 are in the U.S. It’s in the process of redesigning 1,000 stores by the end of 2021. Its goal is to create a more streamlined and faster shopping experience for customers.

At the same time, Amazon must continue its aggressive rollout of warehouse distribution centers and figure out its strategy for building physical stores.

Amazon Is Making Critical Investments

“The key question from here is when/if does the current investment cycle drive evidence of share gains and margin leverage,” RBC Capital Markets analyst Brad Erickson said in a note. “Only time will tell, but in our view AMZN stock is making critical investments as consumers increasingly demand faster shipping which should at least maintain share gains while, importantly, growing gross profit dollars.”

Amazon reported third-quarter results on Oct. 28. Adjusted earnings fell 51% from the year-ago period to $6.12 a share. Analysts expected $8.92 a share. Revenue climbed 15% to $110.8 billion, below expectations of $111.6 billion.

For its fourth quarter, Amazon forecast revenue in the range of $130 billion to $140 billion. That missed analyst estimates for $142 billion. Amazon forecast earnings before interest and taxes, called EBIT, of $1.5 billion, versus estimates of $8.1 billion.

The company’s cloud-computing unit, Amazon Web Services, reported revenue growth of 39% to $11.6 billion. That topped estimates for 35% cloud-computing growth.

Cowen analyst John Blackledge recently raised his price target on Amazon stock to 4,500, from 4,300. He listed Amazon as one of the “best ideas” for 2022, in the mega-cap category.

Amazon Introduces Numerous New Gadgets

On Sept. 28, Amazon introduced a plethora of consumer electronics gadgets, including smart displays and a home robot, at a fall product launch event.

The Seattle-based e-commerce giant unveiled several devices that leverage its Alexa voice assistant technology. They include the Echo Show 15 smart display, which is designed to keep families organized, connected and entertained.

Another Alexa-enabled device is Amazon’s first robot, which is named Astro. The robot will act as a security guard, companion and mobile smart display. It brings together new advancements in artificial intelligence, computer vision, sensor technology, and voice and edge computing, the company said.

Earlier this month, Amazon moved deeper into the television market with an all-new lineup of devices and its first Amazon-branded 4K smart TVs. The Amazon TV products go on sale in October. Amazon also introduced a 4K version of its Fire TV stick.

Plenty Of Growth Opportunities

Amazon entered 2021 with plenty of big growth opportunities. This included plans to expand its virtual health care program across the U.S. It is also expanding its prescription drug business.

On March 17, Amazon announced that its telehealth pilot program, called Amazon Care, would expand to all of its U.S. employees and their families as well as other firms this summer. The program first launched at its Seattle headquarters 18 months ago.

If Amazon can deliver more efficient health care services, the potential is enormous for fueling its growth engine — and by extension Amazon stock. Health care now comprises nearly a fifth of the U.S. economy.

Amazon said the program enables workers to connect with medical professionals via chat or video conference, and connect patients with medical professionals. In addition, Amazon Care can dispatch a medical professional to a patient’s home for additional care.

Analysts at Jefferies give Amazon a buy rating and price target or 4,000.

“We believe low expectations following two consecutive guide-downs better positions AMZN for upside in the core retail business,” according to a Jefferies report.

“We also see attractive growth at AWS and advertising, AMZN’s two highest margin businesses, serving to more than offset near-term cost headwinds from labor shortages and supply chain disruption,” it said.

Tapping The Market For Prescription Drugs

In addition, Amazon is tapping into the $350 billion market for prescription drugs. The company fired a big shot across the bow of drugstores and prescription drug wholesalers late last year when it launched Amazon Pharmacy. The new unit will offer Amazon Prime members discounts of up to 80% on generic drugs and 40% on brand medications.

On May 26, Amazon announced it is acquiring iconic film studio Metro-Goldwyn-Mayer for $8.45 billion, looking broadly expand its position in streaming video and increase the value of its Prime rewards program. The acquisition is Amazon’s largest since buying Whole Foods for $13.7 billion in 2017.

To get Amazon Prime, users pay an annual or monthly fee for the service and receive multiple perks. This includes free access to Amazon Video and Amazon Music. Amazon has invested billions of dollars in its film and TV operations as well as live sports.

Another growth vehicle for Amazon in 2021 is advertising. When looking for a product, about half of U.S. adults start their search with Amazon. More searches draw more advertisers. And as Covid-19 has caused more consumers to shop online that will keep Amazon’s ad growth humming.

Technical Analysis Of Amazon Stock

In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.

The IBD Stock Checkup tool shows that Amazon stock has an IBD Composite Rating of 72 out of 99.  When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, focus on those with a Composite Rating of 90 or higher.

Its Relative Strength Rating is 62. The rating means that Amazon stock has outperformed 62% of all stocks in the IBD database over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.

Amazon is currently not a buy but is working on a cup base with a 3,773.18 buy point.

If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.

You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses. And, you’ll discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.


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