Amazon Is Back to Acting Like a Wall Street Darling

(Bloomberg) — After almost two years of lagging behind the likes of Apple Inc. and Alphabet Inc., Amazon.com Inc. is starting to behave more like one would expect from Wall Street’s favorite megacap stock.

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The shares have rallied 20% since hitting a 20-month low on March 8, the day before the e-commerce giant announced a stock split and buyback plan that sparked the turnaround. Amazon is now on the verge of turning positive in a year in which the Nasdaq 100 Index is still down 10%, making it the best-performing of the four largest U.S. technology companies in 2022.

The recent rally is a welcome development for analysts, who have remained universally bullish as the shares labored. All 57 tracked by Bloomberg data have a buy or equivalent recommendation on the stock, with Goldman Sachs Group Inc. and Bank of America Corp. touting it as a top pick.

Those predictions are now, perhaps, proving prescient: while Amazon is now down just 2% for the year, Alphabet has declined 4%, Apple has slumped 5% and Microsoft Corp. is 11% lower.

To Daniel Morgan, a senior portfolio manager at Synovus Trust, Amazon’s recent gains have a lot to do with the stock split and buybacks — which are clear signals the company is becoming more shareholder friendly.

“The stock split was huge,” Morgan said in an interview. “It looks like some money is swinging back into Amazon because of that perceived shift.”

The potential for returning more capital to shareholders was cited by Dan Loeb’s Third Point LLC, which said last month it significantly boosted its stake in the company. Loeb told investors in February that Amazon was undervalued to the tune of about $1 trillion due to the combination of its different e-commerce and web services businesses, according to the Wall Street Journal.

Still Expensive

Amazon’s rally comes as investors start to embrace higher-valuation stocks again, after months of shunning them in favor of cheaper ones in anticipation of Federal Reserve interest-rate hikes. Like the Nasdaq 100, the shares are still trading well off their high, down 12% from a July record.

While Amazon is much cheaper than it once was, the stock is still priced at 44 times profits projected over the next 12 months, making it by far the most expensive of the megacaps. The average for the Nasdaq 100, by contrast, is 24 times, according to data compiled by Bloomberg.

While the shares may be benefiting from the split and buybacks, Amazon’s businesses will need to continue performing well for the rally to last, according to Michael Casper, an equity strategist with Bloomberg Intelligence. “Those things tend to be a short-term boost and fundamental trends will ultimately carry the day,” Casper said.

Tech Chart of the Day

U.S. technology stocks are flashing a bullish signal little more than a week after the sector entered a bear market. The Nasdaq 100 Index closed above its 50-day moving average on Tuesday for the first time since Jan. 4. The move comes after the tech-heavy gauge climbed for a fifth session in six, adding 12% since hitting a 10-month low on March 14. A break above the closely watched technical level has spurred multiple prolonged rallies, including late last year when the gauge hit a record high.