Amazon.com Inc (AMZN)

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Where Fundamentals Meet Technicals: AMZN
By: Lyn Alden Schwartzer | August 4, 2022

This remains a challenging macro environment. Economic indicators continue to show clear signs of economic deceleration, likely pointing to weak corporate earnings in the quarters ahead.

Meanwhile, the Federal Reserve is tightening monetary policy into that deceleration, which historically is a very bad mix for asset prices.

However, sentiment already reached very bearish levels. We can see that among the recent spike in small trader puts as well as sentiment polls like this one that I like to track from Twitter's financial community or "FinTwit":


Chart Source: Callum Thomas

During truly cataclysmic bear markets, the market sometimes falls sharply even during historically low sentiment. For example, back in 2008 sentiment was very weak, but then the market crashed anyway because the entirety of that bad sentiment was warranted, without exaggeration. However, outside of those situations, negative sentiment is usually at least an intermediate-term contrarian indicator.

This issue of Where Fundamentals Meets Technicals takes a look at two companies that should provide decent long-term appreciation, although naturally they both face a lot of uncertainty in this difficult time.

Amazon

Amazon (AMZN) had a growth spurt in the early months of the pandemic and stimulus, but since has been on a slowing trend as excess liquidity and stimulus is withdrawn from the market.

During this time, the company is slowing down its pace of new logistics locations, as it re-assesses its supply chain plans and puts a break on growth to play some defense.

Meanwhile, the market has lowed its valuation on the company, to under 3x sales:



Analysts are rather bullish on operating cash flow over the next couple years, although I would personally discount that somewhat to account for recessionary conditions.


Chart Source: F.A.S.T. Graphs

Zac’s technicals suggest some weakness this month, but with a probable bull market in place:



Overall, I view Amazon as being one of the better big tech companies out there. The bull case for what investors are really buying is the company’s profit center (Amazon Web Services) and fast-growing advertising business, while the more complex retail side is more of a rider at this point.

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