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Why Amazon Stock Was Higher Today

What happened

Shares of Amazon (NASDAQ: AMZN) were trading up 3.1% as of 11:58 a.m. ET on Tuesday. It was pacing ahead of the S&P 500 index gain of 2.1% on a positive day for stocks.

The move followed news out of China that its central bank was moving to loosen monetary policy, as well as positive news from GlaxoSmithKline about the effectiveness of its antibody treatment against COVID-19 variants, including omicron and delta. The news got investors refocused on Amazon's near-term growth drivers that have one analyst upbeat about 2022.

Image source: Amazon.

So what

Amazon is dealing with some major headwinds in the near term. It expects to incur $4 billion of operating costs relating to supply chain and labor shortages in the fourth quarter.

Despite these problems, the company is still in a relatively solid competitive position. Management noted during the last earnings report that it has been chasing demand for the last two years. It has put a lot of investment into expanding capacity and paying higher wages, which should lead to better inventory availability to keep customer satisfaction high.

Now what

Looking ahead to 2022, one firm is bullish on Amazon. Last week, UBS raised its price target on the stock to $4,700. Analysts at the firm believe revenue growth and higher margins will drive positive investor sentiment heading into the second half of 2022.

Amazon has a lot of momentum in cloud services, advertising, and its third-party-seller business to improve profitability. But it will have to prove to investors that its recent slowing revenue growth, which came in at a low 15% year over year in the third quarter, can reverse and reaccelerate back to pre-pandemic trends closer to the 20% level.

Slowing growth is one reason Amazon stock hasn't move much this year, up 8.5% year to date. Meanwhile, competitors are catching up, with Costco Wholesale reporting double-digit top-line growth. Shares of Costco are up 43% year to date.

Amazon's guidance calls for fourth-quarter sales to grow between 4% and 12% year over year.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool recommends GlaxoSmithKline and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.


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