Analysts are currently bullish on this quality stock

We recently compiled a list of the The 10 Best Quality Stocks to Buy According to Analysts. In this article, we'll take a look at where Amazon.com Inc. (NASDAQ:AMZN) stands compared to the other quality stocks.

Income investing

The stock market is up a significant 20% year-to-date, but as the seasonally volatile months leading up to Election Day approach, potential volatility is to be expected. The S&P 500 has historically fallen 5% to 10% around election time, but tends to recover afterward.

Instead of cashing out money, investors are advised to take advantage of any market declines. In the past, when the Fed cuts interest rates without the threat of a recession, it creates a favorable environment for overall market performance. Mona Mahajan, senior investment strategist at Edward Jones, recently appeared on CNBC to discuss her similar take on these latest market trends and where investors can find opportunities right now. We talked about this in our article about it The 10 Best WallStreetBets Stocks to Buy Nowhere is an excerpt from it:

Simeon Hyman, Global Investment Strategist at ProShares Advisors, appeared on CNBC on October 2 to emphasize “yield” as a key focus and highlight opportunities in fixed income markets that could offer returns of 10-15% as geopolitical tensions worsen. He believes that despite the tensions, the US economy is stronger than the rest of the world.

Simeon Hyman highlighted the importance of the term “income” in the context of current market conditions, noting that the market is just 1% away from its all-time highs. This situation represents a pay cut for income investors and highlights the challenges they face. However, the bond market offers a bright spot; It currently offers enough returns to cushion worsening geopolitical tensions. For example, the yield on a 10-year bond is nearly 4%, and there is a chance it could fall to 3% or less if significant negative events occur. This scenario offers investors the chance to make gains of 10% or 15% on bonds in a turbulent environment, a situation not seen in over a decade.

Although the current market is down 3.7%, which is a little less than 4%, Hyman emphasized that rounding is at play. He expressed surprise at this performance given the ongoing geopolitical tensions, but noted that positive economic news in the US remains positive. Specifically, there was a 50 basis point cut and signs of a soft landing for the economy. An increase of just 0.1% from the previous month suggests that the US economy is doing better than many other countries around the world and remains on solid economic footing, geopolitical issues aside.

Additionally, Hyman proposed a covered call strategy that focuses on the Russell 2000 index, which has underperformed the S&P 500. He described this strategy as beneficial because it allows investors to generate income that could offset recent losses while maintaining a bullish position at small caps. Historically, interest rate cuts have had a positive impact on small-cap stocks, and this strategy allows investors to capitalize on this trend while generating income through covered calls.

For risk-averse investors, the current emphasis on bond markets as a viable investment option fits well with the insights of Simeon Hyman, who highlighted the potential for 10-15% returns on bonds amid geopolitical tensions. Additionally, they can also explore quality stocks with reliable growth histories that can provide stability in uncertain market conditions, similar to the defensive strategies suggested by Hyman. As investors try to track the performance of stocks to find strategies, here is a list of the 10 best quality stocks to buy according to analysts.

methodology

To compile our list, we first looked through Vanguard US Quality Factor ETF's holdings to find those with over 15% upside potential as of October 4, 2024. We then selected the 10 stocks that were most popular among elite hedge funds and funds that analysts were bullish on. Stocks are ranked in ascending order based on their analysts' upside potential.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (SFurther details can be found here).

A customer enters an internet retail store, illustrating the convenience of online shopping.

Amazon.com Inc. (NASDAQ:AMZN)

Average upside potential: 20.91%

Number of hedge fund owners: 308

Amazon.com Inc. (NASDAQ:AMZN) operates in e-commerce, cloud computing, online advertising, digital streaming and artificial intelligence. It is the world's largest online marketplace and offers a wide range of products across various categories. The company also offers cloud computing services through AWS, streaming services such as Prime Video and Music, and hardware products such as Kindle and Echo.

AWS, its most profitable arm, has a profit margin of over 30% and is expected to grow 15% to 21% every year through 2028, so its success is important to the company's future profits. AWS grew 18.8% in the second quarter of 2024. Amazon Prime has become very successful with 200 million members worldwide. It helps customers spend more and amounts to nearly $100 billion a year.

The company makes money from ads in its content. According to AWS, the advertising business is now worth $50 billion. Evercore ISI expects Amazon Prime Video could make a profit of between $1.8 billion and $3.3 billion by 2025, which could boost its overall profit by 3% to 5% this year.

Physical stores like Whole Foods make up the smallest portion of Amazon's business and aren't growing very quickly. Amazon.com Inc. (NASDAQ:AMZN) has invested $30.5 billion in capital spending this year and expects to spend more in the second half of the year. This is driven by the growing demand for AI. Investors are confident about the future, especially AWS, which has a backlog of $156.6 billion and has increased its profitability to over 30%. These factors make it a great investment opportunity.

Meridian Hedged Equity Fund announced the following on Amazon.com, Inc. (NASDAQ:AMZN) in the second quarter of 2024 Investor letter:

Total AMZN takes 7th place on our list of the highest quality stocks to buy, according to analysts. While we recognize AMZN's potential as an investment, we believe AI stocks hold promise for generating high returns in a shorter period of time. If you're looking for an AI stock that has more promise than AMZN but trades at less than 5 times earnings, check out our report on it cheapest AI stock.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley And Jim Cramer says NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.