My Stock Pick for 2010


By Carlos Portocarrero

amazon_logo

I am not a stock pro and I don’t play one on TV, but every so often I have a strong opinion on certain companies and their futures. Today is one of those days.

My stock pick for 2010 is Amazon (AMZN).

I’m making this pick based on three key assumptions:

1. The Kindle Could be the Next “It” Device

It started with the Blackberry—I remember meeting a few people that owned them and my first impression was that it was an ugly-ass phone. Cheap-looking plastic and a Game Boy-ish screen made it come across as something you’d give your four-year old to play with.

But these people wouldn’t put it down—they were addicted.

Research in Motion’s stock went from around $2 when the first smart phone was released to around $150 six years later. That’s an ROI of 7,400%—awesome by any standards.

Then came the iPod and the iPhone. Nobody had MP3 players back in the day, and I vividly remember people mocking my Rio PMP, which was one of the originals. There were tons of MP3 players between the ol’ Rio PMP and the iPod, but Apple made it cool (and easy) to own one.

The iPhone was announced in 2007 when the stock was around $85 and by the end of the year it was up near $200 (Apple’s stock today is hovering just under $200).

It went through the same incubation period as the Blackberry did. No one had one, then you saw a few sprinkled here and there (see the bus effect for more on that phenomenon). Now 50% of the people riding the bus have an iPhone. I’m not kidding—we’ve all noticed this.

Well, being the gadget hound that I am, I read all about Amazon’s Kindle when it was first announced (and wrote about it too). Since I knew about the Sony E-Reader as well, I figured it would just be more of the same.

The E-Reader didn’t cause much of a stir when it came out, so why would this Kindle thing do any better?

It came and went just like Sony’s did: I never saw anyone on my bus carrying it around.

But Amazon put some a lot of the marketing magic behind the Kindle that Apple put into its products, and these days I’m seeing multiple people at a time reading books on their Kindles. That’s why I called it the gadget of the year.

The revolution has begun.

My one hesitation about this theory is this: do people care about books the way they care about their phones or their music? We’ll find out soon enough.

2. Amazon has Become a Major Retailer

Remember the holidays last season? Everyone was in a funk because of the crappy economy and it looked like Americans were finally understanding that spending more than you make was a bad thing.

Which meant that retailers were going to probably be hurting over the holidays. And it’s true, my Black Friday experience in 2008 was nothing like the one from the year before.

People just weren’t spending as much.

And it was in that climate that Amazon posted their best holiday season ever. Since then, the economy has definitely perked up: the S&P 500 is up around 20% this year compared with the precipitous fall in 2008.

Amazon’s stock price was around $51 last Christmas and today it stands at $132.

Things are looking good.

3. Amazon is Hot

It may not make the most sense to make a decision based on what other people think, but it sure feels comforting:

It’s the way they are run,” an analyst at Jefferies said. “Their strategy is to offer the best user experience with the best price. For the longest time, that was missing from the majority of e-commerce players.

  • Smart phones aren’t built for reading, so it’s unlikely they will compete with the Kindle.
  • The Nook is lagging behind the Kindle. Many thought it would provide some competition, but with those kinds of reviews it’s clear the Kindle is the iPhone of the e-reader space.
  • The Kindle keeps breaking sales records.
  • They just acquired Zappos, the kings of customer service. This just reinforces their commitment to their customers and gives them one of the most revered, customer-centric companies in the world. Oh and they made a billion dollars in sales last year too.

Finally, Mercifully, the End

Obviously, the Kindle is a major reason why I think Amazon is a great pick right now. But when you look at what Amazon has become, regardless of the Kindle, it’s pretty obvious that this is a great company with great leadership that’s moving in the right direction.

I’d love to hear what other people think and to shoot some holes in my reasoning. And again: I am not a stock pro nor will I be responsible for any losses you suffer if you decide to buy this stock based on this review!

If you make some money, however, then we’ll talk about how we arrange a commission-type setup.

I do not own any shares of Amazon and if I ever do, I will note it in this area of the post to avoid any conflicts of interest. UPDATE: I don’t own stock, but I have an options position in AMZN that expects it to stay above $127.


5 Responses to “My Stock Pick for 2010”

  • FFB Says:

    Another thing in the short term is the northeast snowstorm that just hit on “Super Saturday.” People couldn’t get out as much as they would like to get their last-minute gifts. Where to turn? Online, to retailers like Amazon!

    The Kindle could be huge but it could also get a ton of competition. Who knows what the Apple tablet will do to the ebook market?

    Still, I think Amazon’s convenience, prices, and ease of use are enough to make them look attractive. Not that I know how to evaluate stocks, just looking at my own spending habits. Amazon is a stock I’ve been thinking about since it’s the first place I look when we need to buy something.

  • Michael Bigger Says:

    You nailed it right on the head! Amazon is the whole thing, including Kindle, Cloud Computing, Subscribe and Save Grocery, etc, etc, etc

    Michael Bigger
    biggercapital/blog

    • Nut Says:

      You guys are right: there are a number of other reasons and having that diversity of success is nice when you’re considering buying a stock.

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