Is Amazon the best stock to buy for UK investors?

Should UK-based be investors buy shares in Amazon for their portfolios, and what is the best way to go about investing in the US-based e-commerce giant?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you had bought Amazon (NASDAQ: AMZN) stock on the first day of the new millennium you would have been up 2,200% as 2020 rolled around. Delaying a purchase of Amazon shares until 2010 would still have netted a 1,276% return at the start of 2020. Waiting until the start of this year to buy Amazon shares has still returned 67% as of right now with the share price sitting around $3,140.

UK investors might be wondering if they have now, finally, missed the chance to get in on the Amazon success story. But have they?

From A to Z

Buying Amazon stock gets an investor a slice of ownership in Amazon.com, Inc. The company started life as an online bookshop. It has grown beyond books to become an e-commerce giant, selling everything from A to Z online. Other businesses use Amazon’s online marketplace to sell, and Amazon collects a 15% commission on average.

With the purchase of Whole Foods, a US-based chain of food stores, in 2017 Amazon branched out into brick and mortar retailing. The purchase also provided the infrastructure to get a click and collect online grocery business underway. Amazon also collects subscriptions for premium membership of its main site, and various others like Audible. Then there is Amazon Web Services (AWS), the company’s burgeoning cloud computing division, and finally, Amazon has a healthy trade in advertising services.

Are Amazon shares worth buying?

Pretty much every analyst out there thinks they are: 98% of recommendations are to buy. At least one of them thinks Amazon’s share could hit $3,800 over 12 months. There is at least one dissenting voice, however, that believes shares in Amazon could fall 41.4% over the next year to $1,840.

I don’t agree with either of those positions. But I do think that only in the most bullish of scenarios is Amazon stock worth buying now for over $3,100. The bull case assumes that over the next 10 years, Amazon gobbles up over 40% of the cloud computing market and over 30% of the e-commerce market. That could happen, and the purchase of Amazon stock today could pay off in the future. But I would prefer a margin of safety, and so would be more willing to buy at closer to $2,800.

Should UK investors buy Amazon stock?

Buying Amazon shares just after its IPO in 1997 at $18 would have returned 17,344% today. When you hear things like that, it is tempting to rush into a stock now for fear of missing out again. I and at least another analyst think Amazon stock is a little overvalued at present. Many will disagree with this position, but I am looking for the price to drop before investing.

If you are a UK investor decided to buy Amazon, then there are other things to consider. One share will cost you a little under £2,500, which is 12.5% of the annual ISA allowance. Other accounts might offer fractional share ownership, but not the benefit of tax-free investing available with an ISA.

Buying shares in Scottish Mortage Investment Trust, a FTSE 100 stock, will get you exposure to Amazon and other tech companies, and shares cost under £10, which is much more manageable. There are of course a number of UK-listed companies that have racked up comparable returns to Amazon over the last 10 years and could be set to do it again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James J. McCombie owns shares of Scottish Mortgage Inv Trust. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »