Worried about another stock market crash? Buy Amazon.
Jhe stock market got off to a weak start this year – and Russia’s recent invasion of Ukraine added to concerns. the S&P500 The index is now down more than 9% since December 31. If you fear another stock market crash, you are surely not alone. Any turbulence in the economy or in the geopolitical environment often prompts us to think about how to protect our portfolios.
A correction does not always signal greater losses on the horizon. But it’s always a good idea to prepare for future stock market crashes at all times. And that means buying solid stocks that cannot be permanently affected by a possible crash. One of my favorites is Amazon (NASDAQ: AMZN). Here’s why.
A solid track record
Amazon has a strong track record of revenue and profit growth. The company has generally grown both over the past few years. And two things are driving this: Amazon’s retail business and Amazon Web Services (AWS), its cloud computing service.
Retail is often sensitive to what is happening in the economy. But Amazon’s strength is that it sells a lot of essentials. So even when households can’t afford the extras, they still turn to Amazon for food, cleaning supplies, and other necessary items.
And its Prime program gives members a reason to come back for all their needs. This is thanks to the many free and fast delivery options included in the membership. Amazon has also dramatically increased its Prime membership over time – and that trend continues. The company said it added “millions” of new members in the United States and abroad in the fourth quarter.
The overall outlook for e-commerce is positive. Digital sales in the United States could top $1 trillion this year, according to Insider Intelligence. This is two years earlier than expected by the research firm. And Insider Intelligence also reports that Amazon accounts for nearly 40% of all e-commerce sales in the United States.
It all sounds good. But here’s something even better: the power of AWS. Amazon’s cloud computing business has been driving profits in the company for some time. And this trend continues. Last year, AWS accounted for about 74% of Amazon’s operating profit.
AWS remains the leader in its industry and continues to gain momentum. Metaplatforms, the owner of Facebook, recently chose AWS as a long-term cloud provider to advance its artificial intelligence program. And Nasdaq is moving its marketplaces to AWS as it becomes a cloud-based exchange. Whether the market recovers or crashes, businesses still need cloud computing services.
Invest in the future
Amazon’s growth has slowed in recent months as the company faces the same headwinds as other retailers: labor shortages and inflation. At the same time, the company invested in its distribution network and its Prime program. All of this hurts short-term profits. But the investments should fuel stronger earnings growth going forward.
Short-term pressure weighed on the stock price. It has fallen about 16% over the past six months. I see this as an opportunity to buy shares of a company that has two companies that are strong enough to withstand the next stock market crash and those that follow. Stock performance may not be immediate. But over time, Amazon has what it takes to deliver products and services to customers and share the gains with investors.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Adria Cimino owns Amazon. The Motley Fool owns and recommends Amazon and Meta Platforms, Inc. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.