Why Amazon Might Be Your Best Bet in a Solo Stock Investment
We all know the phrase, “don’t put all your eggs in one basket.”
This rule highlights a straightforward idea: relying too heavily on one option can lead to significant risk.
This principle rings especially true in investing, where experts often advocate for diversified portfolios. By spreading investments across multiple stocks, the risk of losing life savings due to one poor decision is greatly reduced.
However, consider this: what if you had to select only one stock?
Clearly, that’s not the best approach, but if forced into this situation, I would confidently choose: Amazon (NASDAQ: AMZN). Here’s why.
Image source: Getty Images.
How Amazon Provides Diversification in One Stock
The major issue here is the lack of diversification. Investing in just a single stock puts all funds in one place, making it crucial for that pick to have strong underlying qualities.
Fortunately, Amazon is a conglomerate. It combines multiple sectors including e-commerce, cloud services, advertising, and artificial intelligence, which help it generate a staggering $600 billion in revenue annually.
Each of these divisions targets different markets and responds to a variety of economic trends. For instance, Amazon Web Services (AWS) brings in major revenue from large clients such as Netflix, Adobe, and Meta Platforms. Meanwhile, the e-commerce side supports retail customers, including its over 200 million Prime members who rely on fast delivery for daily needs.
Both sectors depend on a stable economy for growth and profits. However, Amazon stockholders benefit from a mix of business and consumer spending, further supporting the company’s extensive revenue base.
Amazon’s Strong Track Record and Leadership
Next, let’s look at Amazon’s performance history and leadership. Over the past two decades, Amazon achieved a compound annual growth rate (CAGR) of 26.9%. This significantly outpaces the S&P 500, which returned 10.8% over the same timeframe.
AMZN Total Return Level data by YCharts
While past performance doesn’t guarantee future results, it signals that management has tackled numerous challenges while finding ways to expand and improve value for customers. Remember, Amazon started out as an online bookstore, but now generates approximately $50 billion each year in advertising revenue alone.
Finally, a crucial factor behind Amazon’s success is its strong leadership. Founded by Jeff Bezos, the company cultivated a culture that embraces change. This allowed its once-small web services division (AWS) to evolve into the leading cloud provider, generating over $100 billion in annual revenue. Today, current CEO Andy Jassy is poised to continue this trend as Amazon develops exciting new segments, including AI and robotics.
In summary, Amazon presents a mix of strengths. Given the choice to own just one stock, I would gladly choose Amazon.
Should You Invest $1,000 in Amazon Right Now?
Before making a decision to invest in Amazon, consider this:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also a member of The Motley Fool’s board of directors. Jake Lerch holds positions in Adobe and Amazon. The Motley Fool has positions in and recommends Adobe, Amazon, Meta Platforms, and Netflix. The Motley Fool’s disclosure policy is available for review.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
