We all know the expression, “don’t put all your eggs in one basket.”
That’s because it’s a simple way of expressing an abstract idea: too much concentrated risk can lead to disaster.
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Nowhere is this more true than in the investment world. That’s why countless financial gurus have sung the praises of diversified portfolios. By spreading your bets across many stocks, you run the risk of one bad selection destroying your savings is enormous reduced.
But what if you had to to elect just one stock to buy and hold?
Evidently, that is not an ideal strategy, but in this hypothetical scenario I know which stocks I would choose: Amazon (NASDAQ: AMZN). This is why.
To start with, we need consider the largest challenge in this scenario: the lack of diversification. By owning just one stock, our hypothetical investor has put all his eggs in one basket — And So that basket needs some safety features.
Luckily Amazon has them. The company is a conglomerate. It combines e-commerce, cloud services, advertising and artificial intelligence to generate its massive $600 billion annual revenue stream.
Moreover, these segments serve different customers and have been driven Through different economic trends. For example, the company’s cloud services division, Amazon Web Services (AWS), gets significant revenue from it big business customers like it Netflix, AdobeAnd Metaplatforms. On the other hand, Amazon’s e-commerce segment targets retail customers through its 200 million-plus Prime members, who rely on the service for fast delivery of everyday items.
PromisedBoth segments depend on a healthy overall economy to drive sales growth and profits, but at least Amazon shareholders aren’t solely dependent on corporate spending — or consumer spending. There’s a combination of both behind Amazon’s massive revenue stream.
Then there is Amazon’s history and management. First we take stock performance, there are few companies that can do that match Amazon’s long-term growth. Over the past twenty years, Amazon has generated a compound annual growth rate (CAGR) of 26.9%. That is more than double the return of the S&P500 over the same period (10.8%).
While the stock’s past performance is no guarantee of its ability to outperform over the next twenty years, it is a sign that the company’s management has navigated numerous challenges while finding opportunities to expand its product offering expand and increase the value proposition for customers. Finally, let’s not forget that Amazon started as an online bookstore and now generates about $50 billion a year in revenue from advertising alone.
Finally, a major reason that Amazon has survived and thrived even as its core businesses have evolved is that its leadership has been excellent. Starting with founder Jeff Bezos, Amazon has always embraced a culture of change. The company’s initially modest Web Services Division (AWS) grew into the world’s leading provider of cloud services, with annual revenues of more than $100 billion. Likewise, current CEO Andy Jassy will be critical in transforming Amazon over the next decade (or more) as the company continues to expand its newest and most lucrative segments, such as its AI initiatives and robotics.
In short, Amazon is giving investors a little bit of everything. And as I only had to own one share, that’s why I would like to own Amazon.
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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, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Jake Lerch has positions at Adobe and Amazon. The Motley Fool holds positions in and recommends Adobe, Amazon, Meta Platforms and Netflix. The Motley Fool has a disclosure policy.
If I could only buy and hold one stock, this would be it, originally published by The Motley Fool
