Investing in Top Warren Buffett Selection with a $250 Budget
Amazon (AMZN, up by 0.73%) has been a constant in Berkshire Hathaway's investment portfolio since 2019. Although it might have been selected by one of Warren Buffett's investment team members handling a portion of Berkshire's portfolio, Amazon exhibits all the characteristics of a robust business that would appeal to Buffett.
Amazon boasts an unprecedented scale with a trailing revenue of $620 billion. It boasts a significant number of dedicated Prime members and is the leading provider of cloud services. The shares hit record highs shortly after the company posted impressive financial results for the third quarter, currently priced around $210.
Amazon might be challenging to grasp due to its diverse revenue sources, such as cloud computing, retail, and advertising. Its tremendous market performance over the past decade has elevated its market capitalization to over $2.1 trillion, ranking it among the most valuable companies worldwide. The stock currently trades at a substantial price-to-earnings (P/E) ratio of 45.
Despite its premium valuation, Berkshire Hathaway remained committed to its 10 million shares through the second quarter, indicating a potential continuing interest in the shares when it discloses its third-quarter investment holdings. Amazon's efforts to decrease costs and enhance margins can potentially push the shares higher, making it an alluring stock for an investor planning to invest around $200 for this month.
Amazon still has room for profit growth
Amazon reported a 11% year-over-year increase in Q3 revenue, yet growth might not seem particularly stimulating. The online store continues to be its primary revenue source, but it has been growing at a slower pace. Nonetheless, Amazon has been making strides to elevate the profit margin of its online retail business.
Management is overhauling the company's fulfillment costs and implementing strategies to expedite delivery for customers. Faster delivery times can significantly impact transportation expenses, potentially boosting the company's profit margin. Amazon's operating income surged over 100% year-over-year to $47 billion through the first nine months of the year.
Amazon revealed it instituted numerous modifications to its inbound network within the U.S. Addressing CEO Andy Jassy, "As we expand and optimize this new design, we anticipate these improvements will further improve inventory placement, expedite delivery time, cut transportation costs, and enable us to increase units shipped per box."
It seems Amazon might not be done yet. Jassy hinted at further enhancements in fulfillment efficiency and quicker delivery of items, suggesting more profit growth for the company, which could positively impact the stock.
The stock could reach $300
I anticipate the stock's current estimate still leaves plenty of space for additional advancement. Amazon's profits have been expanding briskly, with a net income surge of 54% year-over-year in Q3, pushing the company's profit margin to an all-time high of 8%.
Analysts estimate Amazon's earnings per share will reach $7.47 by 2026. If the stock maintains its current P/E ratio of 45, the share price could potentially reach $338 in two years, providing a return of 60% from the current share price of $210. It's worth noting that investors have consistently assigned a high valuation to the stock for several years, and that trend may continue, given Amazon's promising earnings growth projections.
Definitely not too late to invest in Amazon. As the old saying goes, "stocks follow earnings," and Amazon is demonstrating substantial earnings growth potential for impressive returns.
The potential profit growth of Amazon could make it an attractive investment option, as its operating income surged by over 100% year-over-year and its net income increased by 54% in Q3. This could potentially drive the stock price higher, possibly reaching $338 if it maintains its current price-to-earnings ratio, offering a potential return of 60%.
Given Amazon's robust financial performance and promising earnings growth projections, it may be an opportune moment to consider investing in the stock, echoing the sentiment that "stocks follow earnings."
