Amazon.com stock has trailed the S&P 500 this year.
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This article is an excerpt from Barron’s 10 favorite stocks for 2022. To see the full list, click here.
Amazon.com
‘s dominance in two major businesses makes it a rarity. It has a 40% share of the U.S. e-commerce market and about half of the lucrative cloud-computing sector, through Amazon Web Services. An estimated 85 million U.S. households are Prime members.
The stock (ticker: AMZN), recently at $3,377, has trailed the market in the past year. It still isn’t cheap, trading for 66 times projected 2022 earnings, but none of its megacap internet peers has better prospects. Amazon’s fastest-growing businesses, like AWS and advertising, have high margins.
Evercore analyst Mark Mahaney sees 20%-plus annual revenue gains and expanding margins over the next two to three years. He has an Outperform rating on Amazon, with a price target of $4,300.
Mahaney calls Amazon the “TAMiest” of the megacap internet companies because of the huge opportunities in retail and cloud computing, while offering “the best mix shift in tech.” TAM refers to “total addressable market.”
With more than $60 billion in annual sales, Amazon Web Services could be worth $1 trillion alone. That means investors are paying about $700 billion for the rest, which includes the leading online retail business, offline shopping (including Whole Foods Market), advertising, media (Amazon Prime Video, Audible), and logistics, including warehouses, trucks, and planes.
Two potential pluses for 2022 would be a spinoff of AWS or a long-awaited stock split.
Barron’s Stock Picks for 2022
We have identified these 10 as among the best candidates to outperform the market next year.
| Company / Ticker | Recent Price | YTD Change | 2021E EPS | 2022E EPS | 2022E P/E | Dividend Yield | Market Value (bil) |
|---|---|---|---|---|---|---|---|
| Amazon.com / AMZN | $3,377.42 | 4% | $41.11 | $51.37 | 65.7 | None | $1,713 |
| AT&T / T | 23.71 | -18 | 3.38 | 3.17 | 7.5 | 8.8% | 169 |
| Berkshire Hathaway / BRK.A | 454,550.00 | 31 | 17,466.30 | 18,928.50 | 24.0 | None | 673 |
| General Motors / GM | 58.39 | 40 | 6.73 | 6.93 | 8.4 | None | 85 |
| Hertz Global Holdings / HTZ | 21.01 | -22* | 4.02 | 2.55 | 8.2 | None | 10 |
| IBM / IBM | 125.93 | 5 | 10.05 | 11.04 | 11.4 | 5.2 | 113 |
| Johnson & Johnson / JNJ | 173.01 | 10 | 9.83 | 10.38 | 16.7 | 2.5 | 455 |
| Nordstrom / JWN** | 20.05 | -36 | 1.27 | 1.99 | 10.1 | None | 3 |
| Royal Dutch Shell / RDS.B | 42.82 | 27 | 4.86 | 6.19 | 6.9 | 3.9 | 166 |
| Visa / V*** | 214.37 | -2 | 5.91A | 7.04 | 30.5 | 0.7 | 467 |
*Since July 1. **Estimates for Jan. 2022 and Jan. 2023 fiscal year ends. ***Sept. fiscal year end. E=estimate. A=actual.
Source: FactSet
Write to Andrew Bary at [email protected]
