Gathering New Information about Stocks, Health, and Sports

          This past week eBay recently released its third quarter results which came up to be pretty favorable to investors as the stock managed to climb pretty significantly the next day. This week, Amazon (AMZN), a similar cousin to the online auction giant will be reporting its own earnings in attempt to edge back to the glory days of nearly five years ago. However, with the recent fall of Amazon shares over those past five years, as an investor, you may be hesitant to pursue such an action into acquiring more or any, for that manner, shares at all. While such sentiment is understandable, you will be missing out on a great chance to earn quite a bit of capital gains if you do not follow such reasoning.
         Looking strictly at fundamentals, it is true that Amazon has not preformed at its peak over the course of the past few years. Revenue has increased in a favorable margin the last three years, but unfortunately other factors, such as net profit, have not augmented to many shareholders’ liking. While I believe such statistics don’t lie, there is a more profound implication imbedded into such numbers. Looking strictly at operational margins, Amazon has actually done pretty decently in terms of reporting yearly results which confirm a positive growth stimulated from the company’s actual business, which in my opinion, is probably the most important indicator when looking at fundamentals. The problem Amazon incurred looks directly at its financing and investing expenses, both of which have been terrible as of late. While of course this is undesirable, it is important to understand, with a large rally throughout much of the third quarter complimented with the fact that Amazon is still a young company, both of these factors should climb considerably in the near future. While it may not be reflected directly in this quarter, if Amazon continues its productive operating margin reports, then with economies of scale coupled with a recession looming, expect revenue and profit for Amazon to shoot back up to its glory days from its now oversold price.
         Reading that last sentence you may wonder why shares of Amazon would go up when a recession is nearby. The rational can be explained by simple economic theories. As demand for luxury goods continue to increase, producers eventually will have to increase prices to correspond with such preference. As this happens, coupled with the fact of increasing interest rates from the Federal Reserve, consumers will be more reluctant to purchase these luxury goods causing a surplus of goods. When this happens not only are consumers looking for cheaper prices but many of these same buyers are laid off from their respective job because producers have to cut costs somewhere to make up for the large number of inventory already produced. Now you may ask yourself how this relates to Amazon. Well as mentioned with the process of consumers looking for cheaper prices, many of those buyers will turn to online companies such as Amazon or eBay to obtain particular products for a discount price than what they normally would have purchased during times of economic prosperity. As this happens, companies like Amazon amass more revenue, post incredible results, and please shareholders. To provide some evidence for such a theory, when looking at the recession of 2001 to 2003 you will notice that shares of Amazon rose from about four points to 60 points: an incredible raise of almost 1400%. Now when economic activity was flourishing such as illustrated from 2004 to the present, shares of Amazon dropped nearly 50% from 60 points to near 30 points. Now as the Federal Reserve seems to be finished in terms of raising interest rates which signals that economic activity has tended to slow down, you should expect, according to this theory, shares of Amazon to skyrocket in the near future.
         Thus, while normally I would postpone purchasing shares of Amazon for a few more months, with the recent reports of eBay illustrated in a positive light, I would encourage the purchase of shares of Amazon as both companies operate and obtain revenue in a similar fashion. While there is a possibility that the results of Amazon may not be that favorable as I am making this article out to be for this third quarter report, I am very confident that by this time next year shares of Amazon will be at very least at the 45 point range if not higher.

-Dennis Biray
October 20th, 2006