Amazon.com, Inc. (AMZN)

Long-term hold? P/E ratio 180, which really takes you back. However, if you adjust the accounting Net Income to strip out the non-cash items, the cash P/E ratio is in the high 20s-30s. If looking to hold this for at least 3 years, it is a tremendous company.

This has been a fantastic story, and is one of the stocks that he has regrets not buying. It has a very rich valuation and is growing very quickly, with a fair amount of volatility. Probably not one he would buy, but he does recognize its quality.

A lot of people look on this as a tech name, but technically it is a consumer name. Trading at 66X forward earnings with a very strong growth rate of over 30%. However, that is at a 2X PEG ratio, a bit more expensive than some of your other high flyer type of names in that space. The market has looked at their acquisition of Whole Foods as very positive, but we’ll have to wait and see if they can execute this well. Other names that are more attractive, and with less risk.

Chart shows an upward trend line. Recently momentum has been coming out of the stock, and the stock has bumped up against a line of resistance. It has the appearance of a rising wedge, which is typically a bearish set up if it ever breaks below the lower limit. The lower limit comes in at around $950, and if it breaks through that, there could be a substantial retracement of the move that has taken place over the past 3 years or so. Be careful of that. We are approaching the period of seasonal strength from September all the way through to the end of the year. He would stay away from this right now.

This company has unrivaled retail assets. Also, with their AWS Computing subsidiary, they have low cost computing and have everything they need to compete in the retail world. Thinks their revenues are going to continue to grow at 15%-20% and earnings will be compounding at 15% over the next several years. His target price is $1150 in 12 months. With their big acquisition of Whole Foods, they just tapped into the biggest retail market. (Analysts’ price target is $1100.)

It was just announced they are acquiring Whole Foods (WFM-Q) for about $14 billion. This is a huge disruption for the grocery business, more so initially in the US where they are situated across the country. You can now expect Whole Foods to build out across Canada. Food is the least area penetrated right now in online ordering.

This is going to be very volatile, but it is going to keep going. A big player in retail. Their AWS division is growing rapidly and they are world leaders at that. The move into Cloud is still in its early stage. They haven’t begun to really monetize their ability to be able to advertise directly to the consumer. They haven’t moved into medicine and drug dispensary yet, and he would be surprised if they don’t. Amazon Prime is going to continue to grow. As people move more and more towards online and automatic replenishment shopping, their delivery process is going to get more robust. As that happens, their costs for delivery goes down. Buy this on dips.

There is an oligopoly forming up in Cloud services business with Google (GOOGL-Q), Microsoft (MSFT-Q) and Amazon. He likes what is happening. Amazon recently put up a quarter which was a 6%-8% beat. The company is in the right space and doing the right things, but valuation is really stretched. He would like this to have a little bit of time for consolidation.

He would be more of a buyer than a seller on this. They don’t make any money, but the revenue stream is so powerful that at any point in time they could just say we are going to make a lot of money, because the margins are pretty good.

It is hard to see this not being in a portfolio. Online retail is only 11% of total retail. Think of other industries such as travel, which is now 45% online, there is huge room to grow in online retail. They account for 20% of all US online retail, and that’s only going to grow. Not only the leader in retail, but they are into Cloud services, which is where the world is going. They are doing everything right and hitting on all cylinders. (Analysts’ price target is $1100.)

AAPL-Q vs. GOOGL-Q vs. AMZN-Q. He likes these two as well as AMZN-Q. You could make a case for all three. He owns all three. These guys are changing the world. AAPL has not had an announcement for a while, but will have announcements in the next year. They could pull back a bit, but he would own all three.

The classic category killer. In his funds, he is Long this company and Short the things that Amazon is killing, certain retailers, etc. Not a cheap stock at 28X enterprise value to EBITDA. It certainly has a lot of runway in front of it. They are getting involved in every vertical with respect to retailing. He is nervous.

Wait for a pullback. It has just gone over $1000. What usually happens with round numbers is that it stays there for some time, or it corrects back.

This is such an amazing juggernaut that he doesn’t know how you could value it. It doesn’t make any money, but seems to consume everything in its path, and dominates everything it touches. This is not what he would call a value stock, and in the general market correction, it would get beaten up. As long as it doesn’t get that, he thinks you are going to be okay.

He sees it continuing to get stronger and to dominate the market. The problem with the stock is that it is not very profitable, based on the numbers. It has a price based on anticipation of greater earnings. He finds the valuation too difficult to stomach.