Editor’s Note: This article is a part of our “Top Grad Stocks 2021” series, where our savvy market analysts recommend their best picks for new graduates’ portfolios. Check out “Money Moves for Recent Grads” for more finance advice and click here to see more stocks for your must-buy list.
If I could give one thing to a new college graduate this spring, it would be a share of Amazon (NASDAQ:AMZN) stock.
Well, part of one anyway. I’m not made of money. Shares have been trading consistently over $3,000 each for nearly a year. But brokers like Charles Schwab (NYSE:SCHW) now sell fractional shares, just like privately held Robinhood does.
Open an account for them if they don’t have one, buy them a piece and let them decide when to get more.
Why AMZN Stock?
There are many reasons to like Amazon stock. A capital gain is just one of them.
A more important reason might be to teach about corporate evolution. Amazon is finally getting a new CEO this July: Andy Jassy. That means a lot of change. Bezos’ old team is leaving and Jassy must build his own.
Amazon is facing a threat close to Jassy’s heart. Amazon Web Services (AWS), which he has run since its founding, has been losing market share to Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Having Jassy running the whole company could mean some decisive moves against the rot.
One move Jassy might make would be to split up Amazon, before the antitrust police try to force it on him. AWS has just one-third of the cloud market, and no longer needs the cash flow from Amazon’s store to grow. Maybe software companies and big enterprises might like a “pure play” cloud provider that isn’t tied to rivals. Jassy could create that.
Another move Jassy could make is to share Amazon’s gains with shareholders. The easiest thing to do would be to split the stock, as Tim Cook did a few years after becoming CEO of Apple (NASDAQ:AAPL) a decade ago. Jassy might also institute a dividend and stock buybacks, as Cook did. At its present price Amazon could easily split 20:1 and still trade at about $160 per share. Such moves are silly in the abstract, but it’s useful to learn how silly moves can make money.
Facing the Future
Amazon only seems enormous because it offers computer logistics, physical logistics, retail and media in one giant company.
But Amazon is not America’s largest retailer. Walmart (NYSE:WMT) is. There’s still plenty of competition in logistics from UPS (NYSE:UPS) and FedEx (NYSE:FDX). Netflix (NASDAQ:NFLX) delivers far more media, even though it’s mostly through Amazon’s cloud.
Amazon also faces huge opportunities. Amazon is launching a telemedicine service this summer, and already delivers drugs through PillPack. Analysts say the new service is just the first step it can make in revolutionizing healthcare.
Then there’s banking. Amazon already has a credit card, run through JPMorgan Chase (NYSE:JPM). It’s already making loans to merchants and many Prime members say they’d make deposits with it.
Then there’s streaming media. Amazon is third here, behind not just Netflix but Google’s YouTube. It’s being pressed from behind by Disney (NYSE:DIS). But it’s now in talks to buy MGM and its giant film library. Jassy has recruited Jeff Blackburn, who left Amazon Studios just months ago, to run all of Amazon’s entertainment assets. These include the Twitch livestreaming network, Amazon Music and Kindle ebooks.
The Bottom Line on Amazon
If you want to become a lifelong learner in corporate evolution, study Amazon.
The best way to commit to that is to own some AMZN stock.
I have owned Amazon shares for 8 years. I bought in at around $300. Along the way I have sold a few. That was a mistake. If you buy your graduate just a piece of a share, and let them add more when they can, they’ll learn how big company dynamics work. They’ll probably make a lot of money, too.
On the date of publication, Dana Blankenhorn held a LONG position in AMZN, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn or subscribe to his Substack.
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