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Amazon: Omicron Weakness Presents a Great Opportunity
Stock Analysis & Ideas

Amazon: Omicron Weakness Presents a Great Opportunity

Shares of e-commerce behemoth Amazon (AMZN) followed in the footsteps of the S&P 500 lower amid fears of the COVID-19 Omicron variant. Omicron, labeled as a variant of concern, threatens to slow the world economy’s recovery. Despite this, the Federal Reserve is still set to raise rates in 2022.

Indeed, stocks have been quite volatile. With various European nations at the cusp of locking down, investors must face the reality that the COVID-19 pandemic is not yet over. As we learn more about the Omicron variant, investors may fear that things could get ugly again, as they were in 2020.

However, I remain incredibly bullish on Amazon stock and think the Omicron-driven pullback is unwarranted. (See Analysts’ Top Stocks on TipRanks)

Omicron Variant Risks Ahead

Omicron variant risks are real, but investors need not panic. While the variant may be a cause for concern, there are vaccines, test kits, and enhanced safety protocols like vaccine passports to help minimize the impact of localized outbreaks.

Whether or not Omicron sends full lockdowns sweeping through the U.S. remains to be seen. Regardless, investors should look to Amazon stock as one of the names that should rally or at the very least hold its own amid renewed COVID-19 fears.

Amazon got a major boost in 2020 when physical stores locked down, and consumers turned to digital retailers. Should Omicron pause or even reverse the economic reopening, Amazon is bound to see at least a partial return of the pandemic tailwinds that mostly faded this year.

Moreover, with a low bar set on consumer spending for Black Friday, Cyber Monday, and the coming holiday season, Amazon could have the means to really impress once it finally pulls the curtain on its final quarter of 2021.

Amazon May Be a Hedge against Further Lockdowns

With or without Omicron-induced lockdowns, Amazon looks positioned to sustain a breakout to much higher levels. Even if consumer spending grinds to a slowdown, more heightened COVID fears are likely to see Amazon take some share away from firms operating primarily in the physical realm.

Any such variant-induced sales boosts could help the company move past recent inflationary woes that weighed heavily on margins in its most recent quarter.

Undoubtedly, Amazon strives to keep costs low, even as wage and shipping prices rise. The Great Resignation has also made it tough to retain and attract talent. While the recent trajectory of operating margins may be discouraging, such margin pressures are likely to be transitory in nature.

In spite of pressures applied by a less favorable macro environment, Amazon’s third-quarter results remained close to the middle of the original guidance. Still, Q3 earnings did fall well short of consensus estimates (EPS of $6.12 versus the $8.92 consensus), derailing Amazon stock’s breakout hopes.

In due time, inflation is bound to cool off. With a potential COVID lockdown-induced sales boost thrown into the equation, Amazon has the means to sustain a rally after over a year of consolidating in the low-to-mid $3,000 range.

Wall Street’s Take

Turning to Wall Street, Amazon has a Strong Buy consensus rating, based on 31 Buys assigned in the past three months. the average Amazon price target of $4,116.94 implies 19.8% upside potential.

Analyst price targets range from a low of $3,800.00 per share to a high of $4,700.00 per share.

The Bottom Line on Amazon Stock

Through most of 2021, Amazon swam against the tide. Going into the new year, the tides may very well turn in its direction again, which could bode incredibly well for a stock that I believe is one of the cheapest of the FAANG cohort.

All 31 analysts covering the e-commerce giant have Buy ratings on the stock, and for good reason.

Disclosure: Joey Frenette owned shares of Amazon at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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