A simple buy-the-dip strategy would have produced outsized gains in Amazon$Amazon.com(AMZN)$ stock over the past decade. Could it work again in 2022?
They say history does not always repeat, but it often rhymes. Historical price behavior is one good reason why I believe that Amazon stock may be a great buy at current levels.
I review one trade strategy that would have worked wonders in the past decade. Could it be used now to produce outstanding returns over the next 12 months?
Big Tech companies have been doing superbly since at least the Great Recession of 2008-2009, if not earlier. For this reason, it seems logical that buying Amazon stock or any of its peers on the dip would have been a great strategy.
The approach is supported by the data. Since 2012, when the last FAAMG member went public — Meta$Meta Platforms, Inc.(FB)$ - Get Meta Platforms Inc. Class A Report, in this case — Amazon stock produced average one-year returns of 38% when bought on any given day. Impressive, right?
However, investors that were bold enough to buy AMZN only when the stock’s performance was the absolute worst of the FAAMG group over the previous 12 months would have done even better: 72% gains over the following year, on average.
For reference, Amazon was a peer group loser over the trailing year 25% of the time — that is, one out of every four trading days, on average.
The chart below shows the distribution of AMZN’s forward one-year returns, on any given day since 2012, when shares are bought in a position of utmost weakness relative to the peer group.
Impressively, buying Amazon when it is “the biggest loser” would have resulted in one-year gains of at least +15%, in April 2014. Returns would have reached as high as +126% if the stock were bought in December of that same year.
The chart below shows that Amazon stock had been, by far, the biggest FAAMG loser of the previous 12 months until as recently as February 2. That is, until Meta delivered horrible results that sent shares of the social media company tumbling.
Therefore, should history repeat, investors that buy AMZN shares today (a few days ago would have been even better!) may be up for a pleasant surprise this time next year.
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