The smartest investors bought this stock in 2020
This year will likely be remembered as one of the worst for many investors. The March stock market crash sent portfolios plummeting. the S&P500 fell 30% from January to March as the coronavirus outbreak turned into a pandemic and businesses around the world temporarily closed. Some people’s first instinct might have been to flee the market. But the wealthiest people hung on, and in many cases used the crash as a buying opportunity.
In the third quarter, billionaire investor Warren Buffett Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) clearly believed in stocks, even investing in the Snowflake initial public offering. But the best decision Buffett and other wealthy investors made this year was this: hold or buy. Amazon (NASDAQ:AMZN) shares.
Lockdowns around the world
The coronavirus outbreak has led to stay-at-home orders or lockdowns around the world. And even after the initial lockdown restrictions were lifted, consumers still preferred shopping online to avoid possible infection. Amazon offered them what they needed at the start of the crisis: the essentials to store. And the mix of groceries and general merchandise has made Amazon the one-stop-shop in the later stages of the crisis.
This showed in Amazon’s results. In the third quarter, the online retail giant said its net profit tripled to $6.3 billion year-over-year. Net sales soared 37% to more than $96 billion. And operating profit nearly doubled to $6.2 billion. This follows a doubling of net profit in the second quarter compared to the prior year period. Demand for online shopping was so high at Amazon at the start of the crisis that the company had to hire 175,000 fulfillment and delivery workers to keep pace.
As a result, Amazon shares have soared 70% this year, and the company market capitalization went from $940 billion to almost $1.6 trillion.
This holiday season, we can expect Amazon’s revenue gains to continue. Coronavirus cases are on the rise and some states like California have even issued new stay-at-home orders in some areas. All of this means shoppers will likely continue to opt for online shopping in the weeks to come. So we can expect Amazon to announce a strong holiday season and a full year.
Will this stock make investors richer in 2021?
Now the question is, will this strategy of holding on to Amazon make wealthy investors richer next year? Or will Amazon post a weaker 2021 based on the high profit bar it has set this year?
Amazon’s net income and annual revenue have been growing for five years and more than a decade, respectively. This year’s news has given these measures a boost; but the upward trend was already in place.
Amazon did not rest on its laurels. The company is growing in a key area for today’s customer: delivery options. For example, Amazon recently expanded garage delivery to over 4,000 cities. It was initially only available in 50 cities.
It’s worth mentioning that while Amazon’s stock market gains were strong this year, they weren’t the biggest. biotechnology company Novavax (NASDAQ: NVAX), for example, posted the best performance of any stock. It jumped over 2,000%. So retaining Amazon didn’t mean owning the best performer of the year. And that’s OK. Instead, keeping this Amazon is a smart long-term decision.
Here’s why: Even though the crisis is ending, shoppers have grown to enjoy the convenience of shopping online. And before the epidemic, more and more consumers were buying online. Global retail e-commerce sales are expected to reach $6.54 trillion in 2023, according to Statista. That’s an 85% increase over last year. I think Amazon’s gains should continue no matter how long the coronavirus pandemic lasts.
So the smartest investors would continue to own Amazon stock in 2021, in my view. And probably much longer.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.