Insightful Analysis on Investing in Amazon ETFs after Cathie Wood’s Move

Cathie Wood, the brain behind Ark Investment Management, fortes lie in samll- and mid-cap tech stocks. She captivated the limelight with Ark Innovation ETF ARKK, churning out an impressive 73% return in 2020.

Alas, Cathie Wood’s long-term track record seems far from stellar. Her flagship ETF, ARKK, boasting $5.5 billion in assets, witnessed a 25.7% return over the past year, and a conservative 12.2% return over five years, signifcantly lagging behind the S&P 500’s robust performances.

Despite the headwinds, Cathie Wood recently made waves in the market. Ark Innovation ETF bagged 76,505 shares of Amazon on Oct. 8, 2024, worth $14 million. Amazon’s share price escalated by 18% from Aug. 5, albeit dipping by 9.8% between Sept. 24 to Oct. 8.

Morningstar analyst Dan Romanoff also exhibits positivity towards Amazon, attributing a sturdy fair value of $195 to the company, thanks to its commanding stance in e-commerce and cloud services.

Moreover, Ark Next Generation Internet ETF clinched 2,365 shares of Meta Platforms, valued at $1.4 million on Oct. 8, 2024 close. Meta’s stock soared by 16% in the bygone month. Morningstar analyst Malik Ahmed Khan indicates that Meta might be somewhat overvalued, but its unparalleled social media dominance across Facebook, Instagram, WhatsApp, and Messenger upholds a wide moat.

Amazon.com holds a Zacks Rank #3 (Hold) and boasts an impressive VGM Score of “A.” Nestled within the top-ranked Internet – Commerce industry (within the top 18%), Amazon gleams due to a robust Prime momentum fueled by swift delivery services and a compelling content armamentarium.

Affirmed as a wide-moat stock, Amazon towers above as the supreme leader in e-commerce, wielding a cost advantage and network effects that magnetize hordes of consumers and vendors. With a revolutionary streak in the retail landscape for over two decades, Amazon proves to be a strategic choice, especially as the holiday season draws nigh.

Simultaneously, Amazon’s ascendancy within Amazon Web Services (AWS) fortifies its cloud supremacy. As of Q2 2024, Amazon and Google bolstered their cloud market shares, with Amazon staying a cut above the rest. Per John Dinsdale, chief analyst at Synergy Research Group, Amazon’s deep dive into generative AI via its proprietary processors to untangle itself from pricey NVIDIA chips offers a promising perspective. The endeavor is spearheaded by Amazon’s Annapurna Labs, acquired in 2015, to satiate a burgeoning demand for cost-efficient NVIDIA chip alternatives among Amazon’s clientele.

Amazon’s stock sports a price/earnings (trailing 12 months) ratio of 44.29X pitting against the industry’s P/E of 57.54X. However, Amazon’s Price/Book (Most Recent Quarter) ratio tapes on the pricier side at 8.30X versus the industry average of 2.02X. Furthermore, Amazon’s price/cash flow (most recent fiscal year) ratio stands at 24.74X, beyond the industry yardstick of 14.28X.

A year-on-year growth rate of 63.45% puts Amazon ahead of the industry growth rate of 13.20% and the S&P 500’s 15.67%. Forecasting ahead, Amazon’s next year’s growth rate hovers at 23.21%, contrasting with the industry’s 23.10% and the S&P 500’s 11.34%.

Based on prognoses from 46 analysts, Amazon’s average price target centers around $225.98, with projections spanning from a low of $183.00 to a high of $265.00. This average price target reveals a 20.92% upsurge stemming from the Oct. 16, 2024, closing price of $186.89.

Image Source: Zacks Investment Research

Given the prevailing uncertainties regarding competition in the cloud and AI arena, adopting an ETF approach to track Amazon appears prudent. This strategy dilutes company-specific risks elevate with individual stock holdings. Amazon-centric ETF contenders comprise the Consumer Discretionary Select Sector SPDR Fund XLY (weighing 22.52%), ProShares Online Retail ETF ONLN (weighing 22.33%), and Fidelity MSCI Consumer Discretionary Index ETF FDIS (weighing 22.25%).