Tuesday was a grave day in the U.S., with a surge of 60,000 new cases of COVID-19 reported, and more than 1,100 fatalities according to data from Johns Hopkins. This marks the country's worst single-day spike to date, and the news gets even gloomier: The total number of coronavirus cases in the U.S. has surpassed a grim milestone, topping 3 million.
With the likelihood for additional lockdowns looming, and no end in sight to the stay-at-home and remote work orders still blanketing the nation, the potential for another market crash seems to be rising with each passing day.
This leaves investors wondering what stock could provide the best protection against the possibility of another decline. Given the diversity of its offerings and the tailwinds caused by changing consumer behavior, Amazon.com (NASDAQ: AMZN) is best-positioned to withstand another market crash. Here's why.
Image source: Amazon.
Bucking the downturn
History is the best teacher, so it's worth taking a look back at what happened between February and March, as it provides important clues to what could be ahead for Amazon.
As stay-at-home orders and remote work began in mid-February, the uncertainty caused investors to head for the hills. In the coming weeks, the major market indexes plummeted, leading to the fastest bear-market decline in stock-market history:
Data by YCharts.
Yet even as the mass exodus from stocks occurred, it soon became clear that several companies were well-positioned to ride out the storm or even potentially benefit from the situation -- not only from consumers spending more time at home, but also from the ongoing migration to remote work. No company was better-equipped to ride out another downturn than Amazon.
A port in the storm
There are a number of reasons the tech giant will continue to thrive, with or without another market crash.
While online shopping was already commonplace, adoption of e-commerce accelerated to unprecedented levels as consumers avoided venturing out for fear of contracting the novel coronavirus. While Amazon was already the internet retailer of choice for more than half the country, a new wave of digital shoppers flocked to its site during the pandemic.
Additionally, as consumers skipped trips to the grocery store, Amazon saw a surge in orders for Prime Pantry, its grocery delivery service, with increased demand for things like fruits, vegetables, and meats. Interest was so high, the company was forced to suspend service for a time, as it was unable to keep up with the demand.
During the first quarter, Amazon's net sales climbed to $75.5 billion, up 26% year over year, accelerating from 17% growth in the year-ago quarter, and marking the company's highest growth rate since the third quarter of 2018. Amazon incurred additional costs related to the pandemic, which impacted its bottom line. Operating income declined 9% to $4 billion, while earnings per share fell 29% to $5.01.
It's also worth mentioning that Amazon ended the quarter with a rock-solid balance sheet, with more than $49 billion in cash and marketable securities but just $23 billion in debt.
Image source: Getty Images.
A laundry list of necessary services
But it wasn't just the company's e-commerce site that gained converts. People trapped in their houses due to stay-at-home orders turned in greater numbers to Amazon Prime Video for their viewing needs. The extent of the demand was most evident in Europe, where Amazon was one of several streaming video providers that was asked by the EU to reduce bit rates to "help mitigate any network congestion."
Finally, the shift to remote work caused a surge in the need for cloud computing, as employers across the country and around the world shifted to the needs of a distributed workforce. Amazon Web Services (AWS) is the undisputed leader in the field, and the company reported higher demand for its cloud computing services. In a show of goodwill, Amazon provided small businesses free access to a number of its tools to enable virtual communication and collaboration, as well as training and educational tools.
Data by YCharts.
Second verse, same as the first
As the pandemic unfolded, it quickly became apparent that Amazon would become an important pipeline for necessary supplies and services, as consumers hunkered down at home and businesses adjusted to the reality of employees working remotely.
None of the tailwinds that have been driving Amazon higher this year have changed, helping the stock beat the market by a wide margin so far in 2020. These factors also make Amazon the stock to buy to protect against another market crash. Even more importantly, the company will continue to thrive once the pandemic is contained and the world is on the road to a long-term economic recovery.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
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