The Case for Amazon

Brit Ryle

Posted December 19, 2022

Well here we are, just a handful of days before Christmas. I already know I’m getting about the best gift I can imagine: my daughter got home this Friday from her two-month trip to Europe and she’s going to make the 9-hour drive from New Orleans to St. Marys, Georgia to spend Christmas with me. I haven’t seen her since graduation last May and I’m very excited. 

Looks like we’re having gumbo for Christmas dinner…

The hyper-commercialization of Christmas saps my holiday spirit a little more every year. If it were not for the chance to spend good time with family and friends, I’m sure I would’ve devolved into a grumpy combo of Scrooge and the Grinch, muttering “bah-humbugs'' as I punted those insufferable, cheerful little “Whos” across the Whoville town square…

So, a big thank you to my daughter!

Of course that’s all a pretty nice set up to talk about what this week will bring for stock prices. After last week’s very negative action (which was surely the work of Scrooge and the Grinch), maybe this week can give investors a little surprise under the tree? 

Is there any hope for a Santa Claus rally for stocks? 

Well, I hate to put you through this again, but let’s see how that S&P 500 chart I shared with you on Friday looks today…

amazon AMZN GSPC
Source: Yahoo Finance

About the same, right? 

Except now we have a new daily glyph at the far right, that represents today’s action. 

The S&P 500 is firmly below its 50-day Moving Average (purple line). But as I told you on Friday, it’s the red horizontal line that really matters. 

As I wrote on Friday:

In the shaded circle, you can see a medium-sized red bar next to a larger green bar, with a good deal of space between the top of the red bar and the bottom of the green bar. This is called a “gap” and a gap gets created when one day’s range takes place completely outside of the previous day’s range. In the case of what I’ve highlighted, every bit of the green bar is higher than any part of the red bar that comes before it. 

One of the inviolable rules of technical analysis is that all gaps get filled. That eventually, a daily trading range will move through the gap and enter the daily range that occurred before the gap was created. 

The red line I drew shows the point at which that gap will be closed. It sits at 3,818 on the S&P 500. And I guarantee you that I am not the only one watching that gap at 3,818. And the odds are pretty good that buyers will step in when that gap gets filled. 

The S&P 500 traded down to 3,827 on Friday – just 9 points away from filling that gap. The index tried to open higher today, but was “magically” pulled lower. And the low so far today? Well whaddya know – 3,827. 

Yes, I’m thrilled that my daughter is coming to visit in a few days. But is it too much to ask to get another 9 measly points of downside and get that gap filled??

The Case for Amazon

Last week, I wrote about the Case for Meta. In that article I pointed out that, even though I have a deep dislike for Mark Zuckerberg and Facebook, shares of Meta (NASDAQ: META) are pretty darn cheap at current levels. A couple days later, the good folks at JP Morgan announced that they were raising their rating on Meta, from neutral to overweight. 

That rating change hasn’t helped the stock price much, but I consider my bullish call vindicated.

So today, I’m gonna make the case for Amazon (NASDAQ: AMZN).

If you’ve been reading my thoughts on the end of globalization and the Second American Industrialization, then you’re aware that I do not want to own any stocks that have exposure to China (yes, that includes Apple). And I really want as little international exposure as I can manage, though I am not intractable on that point. There is some wiggle room…

Roughly two-thirds of Amazon’s revenue comes from North America. 2022 revenue is expected to come in at $510 billion, 8% better than 2021. 

You can knock Amazon’s retail biz for its low margins if ya want. But e-commerce currently accounts for only about 15% of total retail in the U.S. There’s a lot of growth.

And Amazon Web Services is growing at a 30% annual clip and has a 32% market share.

There should be no question about Amazon’s growth potential.

The reason investors are down on Amazon is because of earnings. Amazon is actually expected to lose money this year. Earnings per share is expected to be negative $0.08 a share.

But here’s what gets overlooked about Amazon. The company is spending $68 billion on R&D this year. That’s nearly three times the amount that Apple (NASDAQ: AAPL) will spend. I’ve made the point before, but I’ll say it again: anytime it wants to, Amazon can take some of the R&D money and add it to the bottom line.

For instance, earnings next year are expected to be $1.69 a share, which means it’s currently trading with a forward P/E of 42. How hard would it be for Amazon to take $10 billion out of R&D, add it to earnings and cut that P/E ratio in half?

Amazon is trading at 2019 levels, as if the company hasn’t gotten more valuable over the last 3 or 4 years…

Buying Amazon under $90 is a very good idea. 

Happy Investing,


Briton Ryle
Pro Trader Today