Amazon boxes are seen stacked for delivery in Manhattan.© Mike Segar / Reuters/Reuters
Amazon.com is a terrific example of a company that might be simultaneously a tremendous growth story and a bad investment. Or maybe not. I am equal parts tempted and terrified by Amazon's stock.
Amazon is the unquestioned leader in two of the fastest growing industries on the planet, online shopping and cloud computing. The Seeking Alpha website reported that Amazon accounted for 50 per cent of all U.S. e-commerce for the week ending Dec. 17. Amazon is so dominant in online retail that U.S.-based Bespoke Investment Group has developed a 'Death By Amazon' index tracking the decline of traditional retailers.
Amazon Web Services (AWS), the company's cloud computing division, saw revenues climb 57 per cent year over year in 2016 to $12.4- billion (U.S.). Goldman Sachs expects revenues to reach $28.5-billion in 2018.
Amazon's stock is trading at 182.6 times trailing earnings – eight and a half times more expensive than the S&P 500. A lot of the company's impressive growth path is already priced in to the market. Things look a little better if we look at price to estimated next year's earnings. At 65.2 times the valuation is only four times the market average.
The stock is insanely expensive, and thus dangerous to buy, but the growth is so impressive, in businesses that are new and seemingly have a ton of room to grow, that I'm still tempted to add a position as a small part of my portfolio. I'd never suggest another investor follow me in this – the portfolio risks are too high - but if Amazon now turns out to be analogous to Microsoft in 1985, I'll really want to kick myself.
-- Scott Barlow
Three big numbers to note
19,999.63. So close but no cigar. The Dow Jones industrial average was less than a point away from the magical 20,000 milestone on Friday but just couldn't get there.
17 Price to expected earnings of the S&P 500, pricey compared to its 10-year average of 14, according to Thomson Reuters Datastream.
6.1% The increase in fourth-quarter U.S. earnings expected by analysts compared to a year earlier, when slumping oil prices crippled energy companies, according to Thomson Reuters I/B/E/S.
Stocks to ponder
Gildan Activewear Inc. This security has failed to participate in the current market rally and earlier this week appeared on the negative price breakout list, writes Jennifer Dowty. The stock's valuation is becoming more attractive, and analysts believe this stock will reward patient investors with a forecast return of over 23 per cent over the next year, and 17 analysts recently issued 'buy' recommendations.
Crown Capital Partners Inc. This microcap security that offers shareholders an attractive 4.5 per cent dividend yield, is well-covered and highly recommended by analysts with an unanimous 'buy' recommendation from seven analysts (several of whom are from large firms), and according to analysts, the company is poised for future growth. One major risk is the lack of liquidity, which can make the share price quite volatile, writes Jennifer Dowty.
Spin Master Corp. This is a growth stock whose recent price weakness may be a buying opportunity for long-term investors, writes Jennifer Dowty. The average one-year target price is $38.14 (Canadian), implying the share price may appreciate by more than 17 per cent over the next 12 months.
Southern Co. This is a U.S. utility that's worth a look if you want to buy a stable company and get some U.S.-dollar cash flow, writes Gordon Pape.
The Rundown
Beware of this 'faith-based' stock-market rally
Stock markets are positively giddy as they begin the new year. Maybe too giddy for comfort, writes Ian McGugan. The big rally of the past few weeks reflects growing optimism about the global economy as well as excitement over Donald Trump's impending inauguration. Delighted with the potential payoffs from Trumponomics, many investors have come to the conclusion that stocks are great again. The problem is that North American stocks are already great – at least in terms of their lofty valuations. While equities may well continue to levitate at their exalted levels, it's difficult to see the drivers, other than irrational exuberance, that would propel them substantially higher.
Gordon Pape: How 'surprises' derailed my 2016 predications
When they come to write the history of 2016, it will go into the books as a year of surprises. Nothing went according to plan. From Greece to Brexit to Trump, it was one shocker after another. And 2017 is shaping up to be more of the same, writes Gordon Pape. At the start of each year, he offer a series of financial and economic predictions. These are based on the trends and patterns that are in place at the time. Obviously, they can't take into account unexpected developments of the black swan variety. We had so many of those last year that many of his January forecasts ended up being off the mark. Here's how they shaped up.
How to rebalance your portfolio as the new year dawns
As 2016 has come to an end and investors have taken some gains from a strong year in Canadian and North American markets off the table along with locking in some tax losses, cash will be looking for a home in 2017. But where will investors be looking? Ryan Modesto from 5I Research takes a look.
A New Year's resolution to improve your portfolio management
Sam Sivarajan says he finds the start of the new year to be magical. The meter gets set back to zero and provides an opportunity for a do-over. For many, that do-over often includes becoming healthier or getting on top of your finances. So how do you achieve your do-over goals? One key step is to recognize the danger of living on automatic. He explains.
These favourite books of Warren Buffett can help you build true wealth
Warren Buffett loves a good investing book, writes Brian Milner. Here are some of his favourites from over the years. It's part of the obsessive nature that sets the Oracle of Omaha apart from most other investors. He frequently taps what one biographer called the "library" in his brain to help him make important financial decisions. Studies have shown the bulk of high-net-worth people read far more than the average investor. Mr. Buffett just takes it to a different level.
Are the CEOs of your stock holdings worth their paycheques? Here are ways to tell
The Canadian Centre for Policy Alternatives said this week that average compensation for chief executive officers at the top 100 companies listed on the TSX clocked in at $9.5-million for 2015. To add salt to the wound, it pointed out that by noon on the first working day of the year, the typical CEO will have earned the average full-year Canadian industrial wage of $49,510, writes Robert Tattersall. This discussion of executive compensation is timely: Investors will shortly begin to receive annual reports for the year just ended along with a management information circular which outlines the compensation for the top executives. You may even be invited to vote on a "Say on Pay" motion, though the result will be considered advisory and the board may choose to ignore the result. So as an investor, how can you find out whether you are getting value for money?
Thirteen TSX stocks with notable insider buying and selling activity
Jennifer Dowty takes a look at the companies who had significant buying or selling activity by insiders in the month of December.
Desjardins Securities' five dividend stock picks for 2017
Tim Shufelt outlines Desjardins Securities top dividend stock picks for this year. The five dividend stocks presented show the largest potential return to one-year target prices.
The week's most oversold and overbought stocks on the TSX
Scott Barlow takes a look at the stocks that are seeing most buying and selling pressure. The list of overbought, technically vulnerable stocks on the S&P/TSX Composite is sizeable at 17 members, as we'd expect. Boardwalk REIT is the most overbought investment in the benchmark, followed by Bank of Montreal, Dream Office REIT, Alamos Gold Inc., and Laurentian Bank.
Seven stock picks for 2017 from Acumen Capital
Acumen Capital has released its top seven special-situation stock ideas for 2017. Special situations refer to investment ideas across a variety of sectors and market capitalizations, writes Jennifer Dowty. Here are the picks.
Take a cue from Buffett: It's time for a new approach to airline stocks
Airline stocks have long served a useful purpose: For decades, their losing ways helped us understand why some sectors just don't work in long-term portfolios, writes David Berman. But look what's happening now. North American airline stocks, including Air Canada, are on fire and the sector has become far more efficient and profitable.
Retirement funds for teenagers? The financial industry has gone too far
In the eyes of the financial industry, the big priority is retirement planning, writes Ian McGugan. And his teenage daughter is already falling behind. At least that's the message he takes from Vanguard's announcement on Thursday that it is launching a fund in the United States aimed at folks who will retire in 2065.
Number Crunchers
Six Canadian industrial stocks poised to benefit in 2017
Twenty Canadian stocks showing positive momentum
Eight airline stocks set to capitalize on growth in American travel
Ask Globe Investor
The Question:
If dividend investing is so fantastic, why is the performance of the S&P/TSX Canadian Dividend Aristocrats Index so ordinary? The 10-year annualized return is just 1.9 per cent and the five-year annualized return is 3.8 per cent.
The Answer:
It looks like you are quoting the simple price returns of the index – excluding dividends – which is going to paint an unflattering picture given that the index holds dividend stocks exclusively. But even taking this into account, the returns you quoted are too low.
According to S&P/Dow Jones Indices, the S&P/TSX Canadian Dividend Aristocrats Index had a 10-year annualized return of 3 per cent and a five-year annualized return of 4.75 per cent for the periods ended Dec. 22. These returns are for the index value only and exclude dividends.
What about the total return, including dividends? For that, I looked up the performance of the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ), which is designed to replicate the performance of the index (minus fees and expenses).
Over the past 10 years, CDZ posted an annualized total return of about 7.2 per cent, according to longrundata.com. Over the past five years, CDZ's annualized total return was about 9.8 per cent. These returns assume all dividends were reinvested.
The comparable annualized total return figures for XIC, which tracks the S&P/TSX composite index, were 4.7 per cent and 8.5 per cent, respectively. So, on a total return basis, the dividend aristocrats index topped the composite index for both periods.
It's worth noting that the S&P/TSX Canadian Dividend Aristocrats Index is weighted by yield and is composed of stocks with a history of raising their dividends. Dividend indexes or ETFs that employ a different methodology may have produced higher – or lower – returns.
--John Heinzl
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead
Are you getting enough value from your financial adviser? It'll be a common question starting this month as financial statements start flowing under the CRM2 rules that will detail the dollar value of getting investment advice. In Saturday's Globe Investor, Rob Carrick will have some thoughts on how to judge that value and will provide a check list for you to take to your adviser. On Monday, David Milstead will review some surprising numbers when it came to the performance of initial public offerings last year, and Scott Barlow will share a chart that is likely to make TSX investors breathe a little easier.
Click her to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston