Taking Stock: Amazon.com

Dear Mr. Berko:
 I’m 75. I never have been in stocks – except for my state pension, for which I did not pick the investments. I enjoy reading your column, but I don’t understand everything you say. I have another $25,000, 5 percent certificate of deposit coming due next week, and the new rate is terrible. Because I need income, my broker (he has sold me four $25,000 variable annuities in the past eight months, paying 5 percent) thinks I should buy 100 shares of Amazon.com Inc. He is certain it can move up at least 10 percent from its $274 price, to more than $300 a share, this year. So if it were to move up 26 points, I would make $2,600, or more than the $1,250 I get from my $25,000 CDs. It also would be more than my annuities. I don’t gamble, but Amazon.com has good revenues that go higher each year. I have six other $25,000 CDs paying 5 percent coming due over the next 12 months. My broker thinks, in each case, he can pick six other good stocks that will go up by 10 percent in 12 months after I buy them. He showed me charts of lots of stocks that increased their prices much more than 10 percent a year between 2009 and 2012. I wish I had bought them instead of CDs. My brother, who reads your column, lives in Norman, Okla. His finances are almost like mine, and after he talked to my broker, he insisted I ask you for advice to tell me whether this would be good to do.
TR, Oklahoma City

Dear TR:
When we spoke on the phone today, you were either smoking pot or drinking bourbon through a straw. If not, then you’re dumber than a wombat and your beta-amyloid levels are exploding off the charts. You need immediate and sane advice. So the first thing I’d like you to do is send me the name and phone number of your broker. Then I would ask you to visit the lawyer your brother knows and create a document (of which we spoke) to protect you from broksters who leech onto trusting and naive seniors. Wow, how can two brothers, only two years apart, be as different as cheese and chalk?
Amazon.com (AMZN-$270) is an expialidocious company. However, any stock that trades at 180 times this year’s expected earnings of $1.48 and at 80 times 2014’s expected earnings of $3.57 is dangerous to own. I know that AMZN dominates the retail online market and that its $76 billion in projected 2013 revenue is six times the combined revenue of its closest competitors. I’m also mindful that AMZN generates enormous foreign revenues and that $33 billion of those revenues derive from eight countries. And this trend is accelerating. Many complementary e-commerce websites – e.g., Zappos.com, Soap.com and Diapers.com – plus an online movie rental and subscription service, diversify AMZN’s revenue stream and provide multiple layers for continued strong growth. AMZN also allows third-party users to sell their products on Amazon.com and licenses its platform and payment services to many large merchants. Third-party sales account for about 30 percent of AMZN’s 2013 revenues and are growing like wildflowers. The company also has a great balance sheet; it is just $4 billion in debt and has nearly $12 billion in cash.
However, this is not an investment for you. Some observers think CEO Jeff Bezos is getting a little butt-sore after 25 years of sitting in the same chair. Profit margins have been very erratic in the past six years. Net income per share has been volatile, and return on shareholder equity and capital has been disappointing. I think AMZN will be a lackluster performer and believe that the downside risks are much greater than the upside potential. And if AMZN makes a teeny slip, if revenue growth lags just a tad, if earnings miss expectations by a sliver, if a competitor begins nipping at AMZN’s heels, then, considering its lofty price-earnings ratio and a very nervous market, the stock could crash like a meteor. At age 75, you don’t need this aggravation. Your brother and I think you should consider some of the master limited partnerships discussed in past columns, with 6 to 8 percent yields.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
© 2013 Creators Syndicate Inc.

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