Amazon All Set for the Holiday Season: 4 ETFs to Buy

Amazon (AMZN - Analyst Report), no doubt, has been an investors’ darling since the start of the year. The stock more than doubled in the year-to-date frame and is the best performing stock on Nasdaq, close behind Netflix (NFLX). In fact, the e-commerce giant joined the $300 billion club this month and hit an all-time high of $657.00 on November 5.

Incredible performance was credited to the earnings beat streak over four consecutive quarters as well as the company’s profitable cloud-computing business –– Amazon Web Services.

Quick Recap of Q3 Earnings

The company delivered a surprise of 270% for earnings and 2.04% for revenues. From a year-over-year look, earnings per share narrowed from a loss of 95 cents and revenues climbed 23% matching the company’s biggest growth in two years (read: Amazing Q3 at Amazon: ETFs to Benefit).

The online e-commerce behemoth forecast a record holiday season with revenue growth of 14–25% for the fourth quarter. This translates into total revenue of $33.5–$36.8 billion for the quarter, the high end of which is above the Zacks Consensus Estimate of $35.97.

What’s in Store for the Holiday Season?

As Amazon is looking to increase its revenue by as much as 25% in the holiday quarter, it kicked off its Black Friday deals three weeks ahead of the crucial holiday shopping season by launching a dedicated Black Friday Deals Store. The company is giving huge discounts on a wide array of products ranging from TVs, smartphones, cameras, projectors, toys to clothes.

The company also doubled the number of limited-time ‘lightning deals’ to 30,000 on its e-commerce platform and offers Prime members access to these deals 30 minutes earlier. Notably, the 7-week holiday sales already started on Monday and will run through December 22.

The leading online retailer has some interesting deals that could provide it an edge over its major rivals like Apple (AAPL - Analyst Report). In particular, the company’s new 7-inch Fire tablet for just $49.99 would help it to catch up with the Apple’s iPad. Apart from these, Amazon is hiring 100,000 workers, up 25% from the last year, to meet the increase in customer demand during the holiday season. With this, the company is exceeding the holiday hiring practices of its rivals Macy’s (M - Analyst Report), Target (TGT - Analyst Report) and Wal-Mart (WMT - Analyst Report).

Moreover, Amazon is expected to be the clear winner this holiday season mostly on the back of online sales. As per the Adobe forecast, online holiday sales are expected to hit an all-time high of $83 billion, up 11% year over year and Amazon will continue to dominate the U.S. e-commerce industry. (read: Amazon ETFs to Buy on Holiday Optimism in India).  

Added Delights for Amazon

Amazon opened its first ever brick-and-mortar bookstore in Seattle called Amazon Books this week. The availability of the books in the store is based on customer ratings, pre-orders, sales, popularity on Goodreads, and their assessments. While most of the books have been rated four stars and above, some are also award winners.

Further, the legendary investor and hedge fund manager Stanley Druckenmiller admittedly admires Amazon, which is investing in its future and focusing on growth. He also hailed CEO the e-commerce giant’s Jeff Bezos as a “serial monopolist.” Druckenmiller further added that Amazon Web Services has been the company’s strength as it saw over 65% growth last quarter.

Estimates Climbing

Amazon has seen rising earnings estimate revisions from $1.55 to $1.63 per share for the ongoing fourth fiscal quarter over the past one month. This represents whopping growth of 261.4% compared to the industry average of 52.2%. Revenue is also expected to grow 22.1%, much higher than the industry average growth of 15.3%. 

Amazon currently has a Zacks Rank #2 (Buy) and a solid Industry Rank (in the top 23%) at the time of writing, suggesting significant upside for the stock over the coming days. Further, the stock has a solid Growth and Momentum Style Score of ‘A’ each.  

ETFs to Consider

With solid growth prospect and the holiday season around the corner, investors should definitely ride the upcoming surge in a basket form. Below are four ETFs with the highest allocation to this Internet giant that could make for a compelling play for the rest of this year.

Market Vectors Retail ETF (RTH - ETF report)

This fund provides exposure to the 26 largest retail firms by tracking the Market Vectors U.S. Listed Retail 25 Index. Of these, AMZN takes the top position in the basket with 12.5% share. The ETF has a certain tilt toward specialty retail, which accounts for 29% share while Internet retail (18%), hypermarkets (12%), drug stores (11%) and department stores (10%) round off the next three spots. The product has amassed $196.4 million in its asset base and charges 35 bps in annual fees. Volume is moderate as it exchanges nearly 71,000 shares per day. RTH has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook (read: Top Ranked Retail ETFs Wait for a Holiday Season Rally).
 
First Trust Dow Jones Internet Index (FDN - ETF report)

This is one of the most popular and liquid ETFs in the broad technology space with AUM of $4.5 billion and average daily volume of more than 527,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds 41 stocks, with Amazon taking the top spot at 11.4%. From a sector look, Internet mobile applications account for 40% of the portfolio while Internet retail makes up for 22%. The ETF has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.

Consumer Discretionary Select Sector SPDR Fund (XLY - ETF report)

This product offers exposure to the broad consumer discretionary space by tracking the S&P Consumer Discretionary Select Sector Index and charging 0.14% in expense ratio. It is the largest and the most popular product in this space with AUM of nearly $11.7 billion and average daily volume of roughly 6.5 million shares. Holding 91 securities in its basket, Amazon occupies the top position with 10.1% of assets. Media dominates about one-fourth of the portfolio while specialty retail, Internet retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund has a Zacks ETF Rank of 2 with a Medium risk outlook (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs).

PowerShares Nasdaq Internet Portfolio (PNQI - ETF report)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 94 stocks in its basket with AUM of $223.2 million while charging 60 bps in fees per year. It trades in a light volume of around 19,000 shares a day. Amazon is the top firm with an 8.9% allocation in the fund’s basket. In terms of industrial exposure, Internet software and services makes up for 56% share, followed by Internet retail (38.9%). PNQI has a Zacks ETF Rank of 2 with a High risk outlook.