We recently compiled a list of the 8 Most Profitable Blue Chip Stocks to Invest In. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other profitable blue chip stocks.
The September inflation report came in hotter than expected and showed that it remains sticky. Headline inflation rose by 2.4%, slightly above the anticipated 2.3%, and down from 2.5% in August. Month-over-month, CPI increased by 0.2%, exceeding the forecast of 0.1%.
Core inflation, excluding food and energy, also came in higher than expected at 3.3%, compared to the anticipated 3.2%, marking a slight increase from August. On a monthly basis, core CPI rose by 0.3%, which matched August’s figures but was above expectations of 0.2%.
Following the report, the market is expecting a 25 basis points rate cut to no rate cuts in the upcoming Fed meeting. According to the CME FedWatch tool, 79.9% of interest rate traders expect the rate cuts to be at 450-475 bps at the coming Fed meeting while 20.1% expect the rate cut to stay the same. At the beginning of the month, 32.1% expected a 50 bps rate cut, while 67.9% anticipated a 25 bps cut.
Understanding Inflation Trends and Federal Reserve Strategy
Despite the sticky inflation, IBM’s vice chair, Gary Cohn believes that the Fed will cut rates by 100 bps this year. In an interview at CNBC’s ‘Money Movers’, he suggested that the U.S. is experiencing what a soft landing looks like, with inflation decreasing but not steadily. He indicated that reaching the Fed’s 2% target will be challenging, as inflation rates are likely to fluctuate around this level.
Cohn noted that for the first time in nearly two decades, the Fed is balancing both sides of its dual mandate, employment, and price stability, after focusing primarily on one at a time. He believes the Fed is making the right decisions and is currently in a delicate position as it missed meeting opportunities this year.
Cohn expects that the Fed will implement a total of 100 basis points in rate cuts this year, likely consisting of 25 basis point reductions over the next couple of months. When asked about inflation targets, he expressed a preference for slightly exceeding the target inflation rate, suggesting that a rate of around 2.2% would be more acceptable in a growing economy than undershooting the target.
Cohn also highlighted concerns about geopolitical risks and said that global tensions could lead to inflationary pressures by disrupting supply chains and increasing shipping costs.
Our Methodology
For this article, we use stock screeners to identify nearly 30 stocks above $100 billion market cap and $10 billion TTM net income. Next, we narrowed our list to 8 stocks that had a 5-year net income compound annual growth rate of above 10% and were most widely held by institutional investors. The most profitable blue chip stocks are listed in ascending order of the hedge fund sentiment, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com, Inc. (NASDAQ:AMZN)
Market Cap: $1.937 Trillion
5-Year Net Income CAGR: 29.71%
TTM Net Income: $44.42 billion
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is one of the biggest technology and e-commerce companies in the world. Its operations span e-commerce, cloud computing, online advertising, digital streaming, and artificial intelligence industries. The company tops our list of most profitable blue chip stocks.
Its operations are divided into three segments: North America, International, and Amazon Web Services (AWS). For consumers, the company offers a wide selection of products through online and physical stores and emphasizes low prices, fast delivery, and customer service.
One of Amazon’s (NASDAQ:AMZN) significant projects is Kuiper Systems LLC, also known as Project Kuiper. It is a subsidiary of the company founded in 2019 and provides global broadband internet through a satellite constellation in low Earth orbit. The company has invested a substantial amount of money in the project to make it an important player in satellite-based internet services.
On October 10, Morgan Stanley analyst Brian Nowak reiterated a Buy rating for the company stock due to the firm’s confidence in Project Kuiper. Although Kuiper’s costs, including launch expenses, hardware, and R&D, are complex, the analyst views the financial impact as manageable.
He acknowledged the project’s delays but believes Amazon (NASDAQ:AMZN) can absorb the estimated $1.5 billion EBIT hit in 2025, which is minimal compared to its projected $75-$80 billion EBIT. Nowak remains optimistic about the company’s financial strength and ability to handle the timing of cost recognition.
Meridian Hedged Equity Fund stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Amazon.com, Inc. (NASDAQ:AMZN) is a global technology company that operates e-commerce, cloud computing, digital advertising, and other businesses. We own Amazon because we believe it is well-positioned to benefit from several strong secular trends, including the shift to online shopping, the growth of cloud computing, and the increasing importance of digital advertising. The company exceeded expectations in the first quarter, with cloud-computing revenue growth accelerating, driven by easing cost optimization pressures and the ramp of generative AI workloads. The North American retail segment drove record operating margins, highlighting the success of Amazon’s efforts to improve efficiency and lower its cost to serve. International retail also showed promise, as emerging markets steadily progressed towards profitability. Given the strength across these key segments, we continue to hold the position in the company.”
Overall AMZN ranks 1st on our list of the most profitable blue chip stocks to invest in. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
Add Comment