Wednesday, October 8, 2014

A Stock on my Radar: Amazon (AMZN)

Hey all!

Hope you've all had a good week so far. Im excited because earnings season starts today with Alcoa (AA) being the first company on line to report earnings, as it is the norm. I already have the dates in which the companies in my portfolio are reporting and will be sharing the results with you guys (and my thoughts on it) as time permits.

Today I want to talk to you about a company that has been on my radar this year but I have yet to purchase any shares. That company is Amazon (ticker symbol: AMZN).

I think the first time Amazon really caught my attention was about 3 years ago when my accounting professor in graduate school was explaining how incredibly clever the business model of this company is. The professor was letting us know that high levels of investory can be a killer for any company if the inventory doesnt move fast enough. In the case of amazon, the company had zero inventory yet was highly profitable and was able to keep their profits on the books for about a month before they had to pay their suppliers for anything. Basically, someone would order an item and amazon would let the supplier know about the order. Amazon would be serving as some sort of "middle man" simply collecting payment and orchestrating the delivery of the items. Simply genious.

This summer I listened to a webminar series from an incredibly intelligent investor whom I respect very much. During the presentation, someone asked a question about which companies should one focus on when it comes to investing considering that there are so many publicly traded companies out here. In a very insighful answer he advised that one way to approach this is to have a vision in our minds of how we feel the future will look like. We should then invest in the companies that match that same vision of our future.

I dont know about you but when he said that everything made sense to me and I was quite impressed by such a 'simple' yet right on theory about investing. When he said this, my mind immediately ran towards technology and web based companies. I truly believe that one day every single transaction we ever do will take place electronically- via our smart phones, tablets, laptops and through some sort of technology (it feels as if we are there already, doesnt it?). I also feel that companies that already have some history, traction, experience and a strong customer base will be the ones to lead the pack and be at the forefront of this continuously changing world.

So, why Amazon? Not only do they have an incredibly clever business model, as previously explained, but they seem to be the end all be all for online shopping and people love it. It kind of reminds me of the reason why I bought shares in Google about 6 years ago-- because the first thing that would come out of peoples mouth when it came to researching something was "google it". In that same respect, when it comes to Amazon, the first thing most people would ask when shopping for the best deal on an item is "did you check amazon?". And those are the kind of companies I want to be part of.

It is true that Amazon has gotten a whole lot of criticism over the years considering management is pretty much reinvesting all the profits back in to the company in different ventures and "experiments" as it seeks to add additional services for its customers. However, I feel the company is simply getting ready to take over the future {maybe the world} and is making strategic up front investments today in order to be able to reap the rewards in the future. The company is making sure it remains relevant with the times and what the customers want by offering diversified services. Long gone are the days in which people simply used Amazon to buy a book. Now you can pretty much buy anything from toilet paper to groceries and everything in between and have it delivered to the comfort of your own home-- for free! (with a prime membership). Not only that but they have been creating their own exclusive products from phones, to tablets, ereaders, television, shows, music, you name it they probably have it or are working on it.

And lets not even get in to the drone revolution and how they are already conjuring a away to eliminate the postal service system as their "middle man" in delivery. Instead, they want to deliver things to you via a flying device (although I am yet to understand how they'll be able to pull that off but everything is possible in this interesting world of ours).

As I write this, the stock is trading at $317.22 per share and pays zero dividends. One of the issues that seems to have current shareholders a bit upset is the fact that because of all the R&D investing going on, the company refuses to pay dividends as of yet and, please correct me if I am wrong, I dont think there's ever been a share buy back. Instead the money is being spent on new products and developments, as previously mentioned. I dont think theres necessarily anything wrong with that as long as there is a hefty profit at the end of the rainbow.

I have yet to purchase shares and I am ashamed to admit that it is because of the price. I recall I bought Google around the same exact price and look where it is today. Nonetheless, we shall see what happens in the coming months and whether I gather enough courage to click that "buy" button on my brokerage account. I strongly believe this is a solid company that will be highly profitable for many, many years to come.

Amazon has been around since 1994 and its founder, Jeff Bezos, remains in the company as the CEO and is highly involved in all operations which is something I love to see in the companies where I invest.

Tell me, what are YOUR toughts on Amazon?

Thank you for reading and cheers to profits!


disclosure: I do not own any shares of amazon (amzn).