U.S. Markets closed

Will Amazon Recover From Q4 2018 Slump? ETFs in Focus

Zacks Equity Research
Wall Street ended mostly lower on Monday as fears of global economic slowdown and an impending U.S. recession continued to worry investors.

Shares of Amazon AMZN experienced a 25% plunge in the fourth quarter of last year — marking its worst quarterly performance in a decade. While many believe that the broad market sell-off played a huge role, slowing sales growth across the board in the third quarter also dented investor confidence. After topping the $1 trillion mark in September 2018, the company’s market capitalization is presently hovering around the $733 billion mark (as of Jan 4).

Amazon’s fourth-quarter fall was part of the market bloodbath caused by global economic slowdown, rising rate concerns and political uncertainty in the United States. In 2018, the S&P 500 posted its worst performance since the 2008 recession.

Despite the slump, investors of Amazon could still be bullish for 2019. Per FactSet, 41 of the 42 analysts with ratings on the stock recommend buying it, with KeyBanc’s Edward Yruma as the only analyst with a “hold” rating. The stock didn’t face any downgrades in the last quarter. 

Amazon seems to be focusing more on increasing its profitability margins rather than the revenue figures. The company’s profit expansion is primarily driven by the growth of its high-margin businesses, like its cloud, advertising and third-party seller services. In the third quarter of last year, revenues from the cloud computing business — Amazon Web Services — surged 46% year over year.

Lesser Internal Issues in Comparison to Peers

Of late, the company has been embroiled in a few controversies like President Trump’s criticism in relation to taxes, ownership of the Washington Post newspaper and its second headquarter search.

Per Loop Capital’s Anthony Chukumba, Amazon’s issues are far less in comparison to its peers. On Jan 2, Apple APPL suffered its biggest single day loss in six years.  This was an aftermath to the news that it has cut its revenue forecast due to waning iPhone sales in China (read: Apple Tanks, Lowers Q4 Revenue Outlook: Tech ETFs in Focus).

Facebook FB lost nearly half of its value in 2018 owing to privacy scandals. Also, Alphabet GOOGL faced severe criticism for data privacy issues.

Upbeat Future

Per a Wall Street Analyst, John Blackledge, Amazon has several factors, which would help it yield solid global revenue growth with rising margins in the coming years. E-commerce expansion into large retail verticals, such as apparel and groceries, and expansion into global markets are some of the growth drivers.

Per, Blackledge, Amazon Web Services "should enjoy years of secular tailwinds" and witness a compound annual revenue growth rate of about 31% from 2019 to 2024. He also expects advertising revenues to reach $42 billion by 2023.

Recent dovish comments from the Fed chairman Jerome Powell is a boon for this high growth sector. Also, Goldman Sachs sees the Internet stocks to outperform the broader markets in 2019.

Possible Roadblocks Ahead

Signs of slowdown in global economic growth are a major concern. Also, with the new Congress just settling in, scrutiny of big tech-giants with regard to privacy and antitrust concerns could pose some issues ahead.

Further, France is working with other counties on a European Union wide digital tax on major tech giants like Apple, Amazon, Facebook and Alphabet . This would result in bigger tax bills (read: FAANGs See a Weak Start to 2019: More Pain Ahead for ETFs?).

ETFs to Tap

Investors who are bullish on the company could tap the following ETFs. These provide double-digit exposure to Amazon (see: all the Consumer Discretionary ETFs here):

Fidelity MSCI Consumer Discretionary Index ETF FDIS—24.5% weight

It tracks the MSCI USA IMI Consumer Discretionary Index and comprises 293 holdings. The fund’s AUM is $571.4 million and expense ratio is 0.08%. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Amazon ETFs in Focus on Record Christmas Sales).

ProShares Online Retail ETF ONLN—24.0% weight

 It tracks the Consumer Discretionary Select Sector Index and comprises 22 holdings. The fund’s AUM is $31.5 million and expense ratio charged is 0.58%.

Vanguard Consumer Discretionary ETF VCR—23.4% weight

It tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index. There are 326 holdings in the fund pool. The fund’s AUM is $2.4 billion and expense ratio is 0.10%. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Consumer Discretionary Select Sector SPDR Fund XLY—23.0% weight

It tracks the Consumer Discretionary Select Sector Index and comprises 66 holdings. The fund’s AUM is $11.8 billion and expense ratio charged is 0.13%.

VanEck Vectors Retail ETF RTH—19.7% weight

It tracks the MVIS US Listed Retail 25 Index and has 25 holdings. The fund’s AUM is $107.3 million and expense ratio is 0.35%. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Sector ETFs & Stocks to Shine on Upbeat December Jobs Data).

iShares U.S. Consumer Services ETF IYC—19.6% weight

It tracks the Dow Jones U.S. Consumer Services Index. There are 170 holdings in the fund pool. The fund’s AUM is $824.4 million and expense ratio is 0.43%. It has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Global Consumer Discretionary ETF RXI—18.3% weight

It tracks the S&P Global Consumer Discretionary Index and comprises 162 holdings. The fund’s AUM is $271 million and expense ratio is 0.47%.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
FID-CON DIS (FDIS): ETF Research Reports
 
VANECK-RETAIL (RTH): ETF Research Reports
 
ISHARS-CN DI (RXI): ETF Research Reports
 
ISHARS-US CN CY (IYC): ETF Research Reports
 
VIPERS-CONS DIS (VCR): ETF Research Reports
 
SPDR-CONS DISCR (XLY): ETF Research Reports
 
PRO-ONLN RETL (ONLN): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report