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Here's Why Amazon Looks Like a Good Buy Among FAANG Stocks

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Among the FAANG stocks — Facebook (FB - Free Report) , Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) and Google (GOOGL - Free Report) — Amazon has been ruling the roost for quite some time.

Be its spectacular quarterly results or its multi-industrial presence, the company has managed to impress investors.

Amazon is gaining an upper hand due to its aggressive investment strategy. The company is further solidifying its position with delivery and logistics related innovation and international expansion.

Notably, per Statista, e-commerce market share for Amazon in the United States in 2017 was around 37% and it is expected to grow to 50% by 2021.

New initiatives like drive-in-grocery delivery service (AmazonFresh Pickup - order groceries online and collect them from a store nearby) and cashier-less stores (Amazon Go – the company’s first brick-and mortar grocery store) are anticipated to further aid the company reach out to customers who prefer offline shopping.

Moreover, the company’s strong loyalty system in Prime and its Fulfillment by Amazon (FBA) strategy encourage Prime subscribers to spend more. Additionally, the company’s current focus to develop video content, primarily for Prime subscribers enables it to tap on the considerable growth prospects in the video streaming market.

Amazon Web Services (AWS) Driving Growth

Apart from this, AWS, the company’s cloud infrastructure as a service (IaaS) remains a forerunner in the market with around 33% of market share, per a recent article by CNBC, which quoted Synergy Research Group.

The company’s smart speaker Echo, powered by its artificially intelligent (AI) assistant Alexa, also experienced rapid adoption in the market. Per Voicebot.ai, the company had around 71.9% of the market share of the total installed base in 2017.

Amazon is successfully leveraging its first-mover advantage in many of the industries it caters to. The company’s fiscal first-quarter 2019 revenues surged 43% and earnings skyrocketed 121%. Revenues were also positively impacted by its advertising business that increased around 130% year over year in the last reported quarter.

Considering all these facts, the company with a Zacks Rank #2 (Buy) and a Momentum Score of B seems to be a good investment.

This style score indicates the best time to buy a stock and take advantage of its momentum with a highest probability of success.

Back-tested results show that stocks with a Momentum Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 handily outperform other stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

What About the Other FAANG Stocks?

Starting with social media giant Facebook, the company is gaining from an expanding user base and increasing advertising revenues. Rising adoption of the mobile application has aided the growth of mobile ad revenues as well. Instagram, Messenger, WhatsApp, Oculus have also been top-line boosters for the company.

Nevertheless, the stock, which was performing extremely well till mid-March this year, took a dip post the revelation of the Cambridge Analytica data breach news around Mar 19. The data breach allegedly impacted the personal information of around 87 million Facebook users and influenced the outcome of the 2016 US presidential elections.

However, this Zacks Rank #3 (Hold) stock, with its initiatives to counter misinformation and plug security loopholes, is making a steady comeback and restoring its defamed brand value.

Next, let’s talk about iPhone maker, Apple, which is currently conducting its annual Worldwide Developers Conference (WWDC) in San Jose. The company also hit an all-time high on the first day of the conference.

Notably, the high average selling price (ASP) of iPhone X is expected to boost its top line. The increasing adoption of Apple Pay, Apple Music and Apple Watch is driving growth. The company has solid prospects in fast-growing technologies like autonomous vehicle, artificial intelligence (AI) & AR/VR. The company’s initiatives toward building its own chips will help it reduce cost.

However, overdependence on iPhone, which has been witnessing considerably lower demand and increasing competition from lower priced feature rich smartphones, remains a headwind for this Zacks Rank #3 stock.

Apple Inc. Revenue (TTM)

Another FAANG member, Netflix is a provider of Internet television (streaming services) and DVD–rental services. The company is largely benefiting from its focus on original content and international expansion. It currently has around 125 million subscribers worldwide. Moreover, the increase in subscriber base in spite of a surge in subscription charges is a tailwind for the company.

Nevertheless, the company’s recent announcement to invest around 85% of its total spending in original content is anticipated to be a drag on margins, thereby impacting the near-term profitability of this Zacks Rank #3 stock.

Last but not the least, tech giant Google is benefiting from its focus on innovation, AI, cloud, home automation space, strategic acquisitions and Android OS.

The company is a leader in the search engine market and is currently showing interest in the fast growing cloud market with Google Cloud and the home assistant space with Google Assistant and Google Home. The company recently partnered with PayPal to strengthen its presence in the digital payment market.

However, the company is a pretty late entrant in the cloud and home assistant market and will take some time to reap the benefits. Additionally, the company’s increased spending in these segments and litigation issues remain concerns for this Zacks Rank #3 stock.

To Conclude

Quite evidently, the FAANG stocks have performed well and proved their mettle over time. However, considering its fundamentals and the combination of its favorable Zacks Rank and Momentum Score, Amazon stands out as a clear winner at the moment.

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