In it’s earnings call for last quarter, online retailer Amazon.com, Inc. (NASDAQ:AMZN) reported a lower profit margin, a lower net income and indicated that it anticipates next quarter’s net to run somewhere between $10 million and a loss of $340 million. Of course shares jumped 2.2%.
Really, the hypnosis-like hold Amazon has on investors is a mystery to me. Sure, last quarter’s revenue grew by 22%, but without profits how the heck is revenue supposed to matter? It’s the classic case of it not mattering how much you bring in if you’re spending more than you make. That’s where I see Amazon.com, Inc. (NASDAQ:AMZN)–a company that’s continually convincing investors that it’s great because it has all of these big plans. But the plans never seem to pay off.
Since mid-2008 Amazon’s average quarterly profit margin has been about 2.3%. That’s not anything that should be leading to a growth in share value. Heck, the trend is worse than that figure.
Since mid-2011, the average quarterly profit has been 0.4%! Kudos for turning a profit, but really, I think a kid’s lemonade stand does better. There is simply no reason – other than irrational exuberance – for shares of Amazon.com, Inc. (NASDAQ:AMZN) to have gained 239.7% over the last 60 months.
Better places, other spaces
Like I said, there’s no visible reason for Amazon.com, Inc. (NASDAQ:AMZN) to be trading in the upper $200 region. There are much better investments, both in tech and other sectors, that should interest your investment dollars. Here are four that I think are more deserving of investors’ interest and faith.
Chevron Corporation (NYSE:CVX) is a prime contender for a long-term, reliably profitable investment. It’s 2012 net margin was approximately 10.9% – more than Amazon’s combined profit for the last two years – and its last quarter’s profit was higher.
The company pays a very good dividend with a yield of 3% and – since the bottom in early 2009 – the company’s shares have increased in value by about 103.4%. There’s no reason to assume that won’t continue as demand for oil and oil-based products continues to grow in the developing world. Chevron Corporation (NYSE:CVX) is a company that is earning its share-value increase with performance, not promises that no one knows whether they’ll ever come true.
GlaxoSmithKline plc (ADR) (NYSE:GSK) in the pharma sector is another stock that Amazon.com, Inc. (NASDAQ:AMZN)’s investors should be paying attention to. The company has been profitable for a long time and appears capable of continuing that trend.
Its 2012 net margin was approximately 17.9% and and it just beat expectations in its most recent quarter by almost $0.02. Toss in a dividend of 4.5% and share growth since early 2009 of 80.2% and you’ve got a keeper, one that both grows and pays a dividend to boot. Remember, both the U.S. and the rest of the world are aging. That means an increased demand for pharma products and an increased level of sales for those supplying them.
Wal-Mart Stores, Inc. (NYSE:WMT) should be on investors’ radars rather than Amazon. Retail is one of those things that some investors don’t think about. But people gotta shop, right? And not always online.
For basic staples, Wal-Mart Stores, Inc. (NYSE:WMT) has a big chunk of the market locked up. Even in an industry with lighter profit expectations, it beats the pants off of Amazon at about 3.8% net margin and it pays a dividend yield of 2.4% against Amazon paying nothing. Toss in share growth since 2009 of 69% and it’s a good play.
Oracle Corporation (NASDAQ:ORCL) is an under-appreciated tech stock. Unlike Amazon, the firm makes products and supports them. It’s good at it, too. Also unlike Amazon.com, Inc. (NASDAQ:AMZN) it has a history of solid profitability – 26.9% in 2012 alone. Combine that with a share growth of 123% since 2009 and things look pretty good. I could wish for a larger dividend – it only provides a yield of 0.74% – but with that profitability and growth I can understand.
Look DEEP into my eyes
The thing about tech stocks is that sometimes they’re not based on anything real. Amazon makes the Kindle, and that’s great. But the majority of its business is being a middle man, of providing a marketplace for others to sell their products.
That leaves the company hideously vulnerable to competition. One or two well-heeled competitors entering the market with the intent of spending a few hundred million dollars – say Baidu.com, Inc. (ADR) (NASDAQ:BIDU) or another firm from Asia – and Amazon could find that it suddenly needs to stop hand-waving and make some profit fast–and the firm doesn’t have the history to make me believe it can do it.
The article Four Companies that Are Better to Invest in Than Amazon originally appeared on Fool.com and is written by Nate Wooley.
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