Is Amazon.com, Inc. (AMZN) A Good Stock To Buy Today? Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period. However, hedge funds’ stock picks historically outperformed the market by a decent margin.
This year isn’t an exception. We track more than 800 hedge funds and measure the performance of their long stock picks in real time. We created a giant $1.6 trillion portfolio of hedge funds’ long positions. It is true that hedge funds had some high profile losses this year that are “celebrated” by the media but their stock picks actually outperformed the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first 2 months of this year. So, on average it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Amazon.
Amazon.com, Inc. (NASDAQ:AMZN) was in 141 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 113 hedge funds in our database with AMZN positions at the end of the previous quarter. Amazon was one of the 10 most popular stocks among hedge funds duirng both quarters. The stock returned 32% during the fourth quarter but gave back most of these gains during the first two months of this year after losing more than 18%. Is Amazon overpriced or does the recent decline in stock price present an opportunity to buy the stock? Let’s first take a look at why hedge funds love the stock so much. Billionaire hedge fund manager Stan Druckenmiller mentioned Amazon in November at the Dealbook Conference. Here is what he said:
“I love Amazon. Because they’re investing their future. Bezos is a serial monopolist. He’s come up with this AWS, ok, which is absolutely exploding. I don’t know how many people here are small businessmen and women. If you’re starting a business today, you don’t need a technical department, you don’t need a back-office. You can use AWS. By the way, it’s just ripping to shreds the 10 or 15 consultant you have from IBM on your firm, that you used to need because now you’re going into the cloud. And in retail they were 22% of U.S. sales growth this year of retail, one company. And he’s just sitting there with narrow margins and when he has enough share of market, whenever he wants he can get those margins up.”
Not all hedge fund managers are bullish on the stock though. Another billionaire hedge fund manager, David Einhorn, has been shorting Amazon.