As most subscribers are aware, the core reason why I am bearish on equities is slowing global economic and corporate profit growth relative to consensus expectations.
In the past I have stated that Goldman Sachs (GS) is my favorite large-cap stock for 2019. But, with the shares having levitated from $167 to $200 (where I sold most of my stock) I can no longer make that statement.
At the core of my case for Amazon (AMZN) is that in a world starved for growth, investors will likely value companies with strong organic growth prospects.
There is no company extant that possesses the organic and external growth opportunities as Amazon.
My new favorite large-cap stock for 2019 is Amazon. AMZN was placed on my Best Ideas List on Dec. 26, 2018 at $1,383. It closed Friday's session at $1,712.
My buy thesis was contained in "It Is Time To Consider Buying Amazon" late last year. Here are a few excerpts:
For over a year, I have been cautioning about the existential threat of regulation to Amazon. Most recently, in November, these concerns were echoed in Is a Disruptive Amazon a Jobs Killer or a Provider of Low-Cost Products?
However, with the shares ... down dramatically from an August high of $2,015 to $1,344 at last Monday's close in the November-December bear market, as I wrote in my Surprise List for 2019, it is time to consider the long side of Amazon and the other FANG constituent members:
Amazon's business franchise is secure and getting stronger. The competitive threats seem surmountable, and its market share appears to have a widening moat. The company's shares have also already materially discounted a modest threat of heightened regulation, which no longer seems as very threatening in any case.
The Existential Threat of Regulation Has RetreatedRecognizing that over the last two decades technology has out sped regulation, I have suggested that the principal headwind facing Amazon is antitrust and more regulatory interference that would adversely impact the company's growth ambitions as well adding substantial costs that would risk disturbing elevated earnings expectations:
However, based on my contacts in Washington and elsewhere I now believe that my concerns about a potential regulatory attack on Amazon have substantially diminished and that the Chicago School of Economics' "free markets interpretation" of the antitrust laws will prevail over Justice William Douglas' views.
I no longer feel that the current Administration has the appetite to increase its regulatory power over Amazon -- despite the President's strong dislike of Jeff Bezos (and The Washington Post). Indeed, I now believe that even if the Democrats win the White House in the 2020 election there will be little threat from that quarter to the company's growth aspirations.
Finally, the recent Bezos divorce seems to be a side show that has distracted investors from the extraordinary growth prospects of Amazon -- contributing, in part, to the stock's fall from grace.
Amazon's business "moat" is deep and secure.
The threat of increased regulation of the company continues to exist... but is now seen as diminished -- likely to be modest in scope and having little impact on Amazon's growth ambitions or cost structure.
Given this "free hand," I view this as an opportunity to own Amazon's shares.
Amazon is my new favorite large-cap stock.
(This commentary originally appeared on Real Money Pro on March 14. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
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