Jefferies made the bold call of replacing Google parent company Alphabet Inc (NASDAQ: GOOGL) with Amazon.com Inc (NASDAQ: AMZN) in its Franchise Picks list on Wednesday.
According to Jefferies, Amazon’s valuation currently stands at a 10% discount compared to its historical average versus Alphabet that is now at a 10% premium. Analysts also expressed confidence that increased eCommerce adoption will continue to fuel growth for Amazon in the upcoming months.
Alphabet’s stock performance is much better than Amazon this year
In terms of stock performance, Alphabet is beating Amazon by a significant margin with a 40% growth year-to-date versus Amazon’s 4.0% only. Commenting on technicals, Mark Newton of Newton Advisors said on CNBC’s “Trading Nation”:
“Amazon has a much better risk to reward ratio. Compared to last year’s low, Alphabet is up about 140% versus Amazon’s just under 100%. At this stage of the rally, it’s important to pick stocks that are not too overbought and provide a base from where they’ll potentially make the next move higher. In this case, Amazon doesn’t show nearly the same degree of being overbought. It’s very easy to define the risk level, which is right near $3,100 on the downside.”
Newton further highlighted that part of the reason why Jefferies picked Amazon over Alphabet could be the negative divergence in GOOGL. “The stock has become very stretched,” he said.
Delano Saporu’s remarks on CNBC’s “Trading Nation”
During the same interview with CNBC, Delano Saporu of New Street Advisors Group echoed a similar opinion.
“Amazon is trading at a multiple discount. The EBITDA is about 10%, the trailing twelve-month price to earnings ratio is also at a discount of about 30%. So, the valuation looks relatively sweet for Amazon at the moment.”
63% of respondents in Jefferies’ survey said they were sticking to online shopping despite easing COVID-19 restrictions. This sustained shift to eCommerce, Saporu added, is sufficient to stay positive on Amazon.
Saporu also lauded AWS, which is a high margin business, as Amazon’s largest source of operating profits and expressed confidence that the platform will continue grow rapidly in the future.
“Considering a 4% year-to-date growth in AMZN, I’d say there’s a lot of upside for Amazon. That’s why I’d be buying here.”
The news comes a week after JPMorgan analysts forecast Amazon to become the largest U.S. retailer by 2022. Amazon closed the regular session about 1% up on Wednesday.
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