Intuitively, many investors are undoubtedly tempted to ignore the recent move up in Amazon (NASDAQ:AMZN). Although AMZN stock has seen some volatility since hitting a bottom in August, shares fundamentally have a credibility problem.
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Everywhere you look, you see multiple pressure points. Of course, the biggest headwind comes in the form of the U.S.-China trade war. Neither side shows any interest in conceding to the other. Additionally, national pride and political reputation are at stake for both battling parties. While the conflict drags on, both the U.S. and Chinese economies are feeling the hurt.
Because the trade war is taking its toll on multiple industries including manufacturing, it imposes problems for the consumer. If the tit-for-tat tariffs roll into next year — and that seems likely to be the case — consumer sentiment will almost surely fade. Of course, that’s a huge negative for AMZN stock.
Another factor working against Amazon stock is its target consumers’ behaviors. Let’s face it: most folks don’t shop on Amazon.com to buy groceries or essential products. No, the e-commerce giant exists to serve our discretionary needs. In a decisive bull market, this was all fine and well.
But with a possible market downturn on the horizon, AMZN stock looks less appealing. It’s no surprise that last month, investors took a dim view on luxury retailers like Nordstrom (NYSE:JWN) and even mainstream Macy’s (NYSE:M).
But should investors avoid Amazon stock? Technically, the latest moves aren’t that impressive over a larger framework. Still, on a fundamental basis, Amazon offers some surprisingly recession-resistant catalysts that make buying on any dips a viable proposition.
E-commerce is Ideal for Cost-Conscious Consumers
Logically, in a recession, everyone should pare down unnecessary spending. After all, paying rent or buying groceries is far more important than that shiny new gadget. In that environment, consumer-levered investments like Amazon stock don’t intuitively appeal to market buyers.
That said, we’re Americans. Although we’ll collectively trim down our spending in a recession, we won’t quit the habit. Witness the last recession, when retail sales, excluding food services, dipped noticeably. Yet total retail sales recovered completely inside of four years.
Moreover, Amazon has taken an increasingly larger share of the broader retail pie. So, recession or not, people will shop on the e-commerce giant’s website. And that augurs well for AMZN stock.
You also must consider the inherently cost-effective nature of online shopping. Obviously, you don’t have to drive to a physical location: you can simply pick and choose what you want from the comfort of your own home. Neither do you have to fight for parking or stand in line. Over time, these little frustrations add up to serious dollars, dollars which recession-hurting consumers don’t have.
Thus, don’t be surprised if AMZN stock performs well in a recession, especially at the expense of traditional retailers.
AMZN to Benefit from Premium on Cheap Entertainment
Recently, I made the case that a recession is exactly what Roku (NASDAQ:ROKU) needs. Although a seemingly click-baity thing to say, I presented a logical argument: during an economic slump, sources of cheap entertainment will experience a surge in demand.
Understandably, humans can’t keep swinging indefinitely. At some point, they need to unwind, or they need a little bit of joy to look forward to. For instance, during the Great Depression, the so-called golden age of Hollywood came alive. The box office provided a moment of respite to American workers who were otherwise battling an unprecedented crisis.
By the way, this isn’t just a yesteryear concept. During the Great Recession, beleaguered professionals flocked to the box office.
Now it remains to be seen if Hollywood can repeat its magic in the next recession. For what it’s worth, I think it can. But one thing is certain: people will look for cheap distractions. AMZN has the right ticket.
Once you’re done extending your plastic on Amazon.com, you can take advantage of their streaming services. A few years back, the company spun off Prime Video in a bid to disrupt Netflix (NASDAQ:NFLX). And in a recession, Amazon has an advantage of consolidating various consumer-level components under one umbrella.
AWS to Support Amazon Stock
The beauty of Amazon stock is that it’s no longer just a consumer-related investment. Over the years, the company has disrupted many technology sectors.
The biggest impact so far is with cloud services. At the latest count, AMZN owns nearly half the public cloud’s infrastructure. Incredibly, they’re leading names like Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), companies that really should take the lead here.
Naturally, this gives Amazon considerable leverage and buffer should a recession strike. Moreover, the cloud dominance virtually guarantees the company continued relevancy, even in a slump. That’s because when used appropriately, the cloud can save large enterprises money on operating costs.
No matter where you turn, Amazon has multiple revenue streams to weather an economic crisis. Therefore, I’m more than willing to give AMZN stock the benefit of the doubt.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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