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Buy Amazon.com, Inc. (AMZN) Stock, Not Prime. Here’s Why.

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You couldn't miss the news Aug. 28 that Amazon.com, Inc. (NASDAQ: AMZN ) dropped prices by as much as 43% in its first day as the new owner of Whole Foods. AMZN stock gained $8 Aug. 29 on the news.

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Here in Toronto, I took a look at the weekly flyer for Longo's, the local grocery store where I shop. It had a 2.2-pound rotisserie chicken on sale for CAD$8.99, three dollars off the regular price of CAD$11.99. In U.S. dollars, the sale price is $7.15 and the regular price $9.54, both cheaper than the Whole Foods price.

It might not have been organic, but it illustrates the fact AMZN isn't the deal everyone says it is. I'm sure in supermarkets across the U.S. people can come up with examples of food products being cheaper at their local store than the new and improved prices at Whole Foods.

The Real AMZN

While I'm a big fan of Jeff Bezos, it's important that investors remember to separate truth from fiction when looking at AMZN stock. Imagine, a company lowering prices by 43%, with little care for its welfare. Amazing. But sadly, untrue.

"Goodbye, Whole Foods as we know it," Barclays Capital Inc. analyst Karen Short said in a note to clients. "The conventional supermarket has not evolved much in decades. But Amazon will likely drive drastically different shopping behavior in grocery. The survival of the fittest has begun."

AMZN has done an excellent job from a public relations standpoint creating an image of itself that is almost benevolent rather than merely opportunistic. It's passive/aggressive approach to business has successfully convinced those in the investment world, the grocery business and general retail, that Amazon is a leader while everyone else is just reacting after the fact.

It's a thesis that drove Amazon stock to $1,000 in May, a level it will surely hit once more in the fall.

Amazon's Slight of Hand

I was in Prince Edward Island in early July visiting my wife's family. While at a cousin's place we were told all about the benefits of Amazon Prime, including the most valuable of features - free two-day shipping.

The benefits, stored nicely in the recesses of my mind, came quickly to the forefront when my wife, who was out of town on business, asked me to order something Lego-like for our godson's birthday.

I immediately went to Amazon.ca and checked out all the Batman-related Lego toys. A particularly expensive option caught my attention. It was the LEGO Batman Movie, The Ultimate Batmobile building set, for CAD$139.99. Before I ordered it, I remembered what my wife's cousin had said about Amazon Prime (free two-day shipping); I started a 30-day free trial that I could turn into a year's membership for CAD$79 plus 13% tax.

My Amazon Prime free trial in hand, I ordered the toy knowing free two-day shipping was available. I gladly took it. Ordered on Thursday, it finally was delivered the following Wednesday, almost a week later.

In fairness to AMZN, the item was out of the seller's facility the next morning, and if not for it being a weekend, it might have made it from Toronto to Ottawa in two days, but I'll never know.

AMZN Stock: Spend More

What irks me is a 2015 article in Money magazine that highlights Amazon's real reason for offering Prime at a money-losing price.

" Research released just after the holidays revealed some of the strategies behind Amazon prices : While the e-commerce giant tended to have the cheapest prices on the most popular items, prices for many other goods were far higher than what shoppers might find at Walmart and other retailers," stated Money's Brad Tuttle. "What Amazon appears to be hoping is that, after seeing low prices on one or two popular items, customers are lulled into believing that the site has the cheapest prices for everything - and this is just not the case."

AMZN is discreetly creating a large customer base through Prime that can't be bothered to check prices at other stores which ultimately sees them spending more than they need to simply for the convenience of two-day shipping, something that is rarely necessary, and in my case, fails to happen.

Canadians love their bank stocks because of the excellent dividends they pay. We worship the banks despite knowing they're overcharging us on almost every product and service they offer. Amazon has become the benevolent Canadian bank ready to save you money - when what they want is for you to spend every last cent of your disposable income on its products and services.

Bottom Line on AMZN Stock

If I only had one choice between Amazon Prime and Amazon stock, ten times out of ten, I'd go with the stock.

For me, Amazon Prime is anything but prime.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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The post Buy Amazon.com, Inc. (AMZN) Stock, Not Prime. Here's Why. appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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