This world-renowned value investor bets big on Amazon


As the economy begins to reopen, the e-commerce giant’s stock Amazon.com (NASDAQ: AMZN) is, dare I say it, hated by investors.

While many see Amazon as a huge winner from the pandemic, the stock is below levels initially set last August – almost 10 months ago. And this despite the results of the successful profits in April. Clearly, investors are wary of Amazon’s potential performance when people leave their homes.

Yet one of the world’s most famous value investors – the one who has been quite fair on Amazon stocks for the past decade – has just reloaded his long-term bet on Amazon. Not only that, but he even exploited this bet with call options.

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Who is afraid of the grand reopening? Not Bill Miller

Bill Miller is a legendary value investor with one of the best investment history of all time. However, unlike some other value-dyed wool investors, he also has a penchant for disruptive technology and high-growth compounds.

In the fourth quarter of 2020, Amazon stock represented 3.9% of the Miller Value Partners portfolio, which is the fund’s fourth largest allocation. During the first quarter, Miller reduced this stake by a negligible amount, lowering the equity allocation to 3.15% of the portfolio. However, alongside this move, Miller bought a large number of call options from Amazon, with an underlying stock count of 63,300, which would imply an additional 5.11% stake. This could imply a total allocation of 8.26% to Amazon – the largest allocation in the portfolio and nearly double the amount of its next largest stake.

A call option gives the owner the right to buy 100 shares at a certain price before a certain time. If, at the time of expiration, the stock is less than the strike price, the option expires worthless. If the stock grows a lot, however, one can make a lot more profit for the amount of capital deployed. Therefore, buying a call option is like making a leveraged bet on a stock.

Needless to say, Miller just made a very bullish bet on Amazon, at a time when it is no longer in fashion on Wall Street.

Why is Miller so bullish as the economy reopens?

Miller recently spoke with Barron’s magazine, in which he discussed his position on Amazon, among other titles. In Miller’s mind, as investors tend to focus on retail, he thinks Amazon’s two highest-margin companies, Amazon Web Services and the digital advertising business, could represent almost all of Amazon’s value in a few years. Essentially, that means you get the world’s first ecommerce retail platform for free.

Additionally, Miller sees an opportunity in Amazon’s relatively new business-to-business platform, as well as the owned logistics platform that it will open to third parties after the pandemic – and he believes it won’t. is not even in the price yet:

They build planes and have ordered 100,000 electric vans. … Amazon is building capacity because they want to be able to handle all of their own volume. But then they’re going to build excess capacity, which they can sell. Obviously, their economy will become very different for their internal affairs, as all of that cost will be spread over a much larger basis. And this business is not even in the price yet.

He would put How? ‘Or’ What much of his net worth?

We don’t know exactly how long-term Miller’s Amazon options are, or what the strike price is, but it’s clear Miller is still very bullish on the stock. In fact, at the request of Barron’s how much he would recommend investors to invest in Amazon, he said 20% to 30% of their portfolios:

There is very little risk. If the antitrust laws change and the mood of the country changes and they go after Amazon and split it up, so much the better! Then it is worth much more.

Obviously, here at Le Fou we preach the virtues of portfolio diversification and buying at least 10 to 15 stocks, but there is also a risk of overdiversification, in which investors spread their bets too much on lesser ideas. good, which can reduce yields. . Yes, 20% to 30% is a lot to put into a single stock, but if one were to bet that much on a stock, one of the best choices is a large cap recession resistant with a limited downside. I would put Amazon in this category.

So, while many are looking to “reopen” games today, investors shouldn’t forget about Amazon. Although short-term movements in stocks are impossible to predict, the stock has not moved for some time, so it may be due to another rise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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