This year will probably be remembered as one of the worst for many investors. The March market crash sent portfolios into a tailspin. The S&P 500 lost 30% from January through its March low as the coronavirus outbreak turned into a pandemic and businesses around the world temporarily closed their doors. The first instinct for some might have been to flee the market. But the richest people hung on -- and in many instances, used the crash as a buying opportunity.
In the third quarter, billionaire investor Warren Buffett's Berkshire Hathaway (BRK.A 0.58%) (BRK.B 0.38%) was a clear believer in stocks, even investing in the Snowflake initial public offering. But the best move Buffett, and other wealthy investors, made this year was this: holding onto or buying Amazon (AMZN -0.17%) shares.
Image source: Getty Images.
Lockdowns around the world
The coronavirus outbreak resulted in stay-at-home orders or lockdowns around the world. And even after the initial lockdown restrictions were lifted, consumers still favored shopping online to avoid possible infection. Amazon offered them what they needed early on in the crisis: essentials to stockpile. And the mix of grocery and general merchandise made Amazon the one-stop shop into the following stages of the crisis.
This showed in Amazon's results. In the third quarter, the online retail giant said net income tripled to $6.3 billion year over year. Net sales climbed 37% to more than $96 billion. And operating income nearly doubled to $6.2 billion. This follows a doubling of net income in the second quarter compared with the year-earlier period. Online shopping demand was so high at Amazon early in the crisis that the company had to hire 175,000 workers in fulfillment and delivery to keep up.
As a result, Amazon's shares have climbed 70% this year, and the company's market capitalization has soared from $940 billion to nearly $1.6 trillion.
Data source: YCharts.
This holiday season, we can expect Amazon's earnings gains to continue. Coronavirus cases are on the rise, and some states such as California have even issued new stay-at-home orders in certain areas. All of this means shoppers are likely to continue opting for online purchases in the coming weeks. So, we can expect Amazon to report a strong holiday season and full year.
Will this stock make investors richer in 2021?
Now the question is: Will this strategy of holding onto Amazon make rich investors richer next year? Or will Amazon post a weaker 2021 based on the high bar for earnings it set this year?
Amazon's annual net income and revenue have been climbing for five years and more than a decade, respectively. This year's news gave those measures a boost; but the upward trend was already in place.
Data source: YCharts.
Amazon hasn't rested on its laurels. The company is ramping up in an area that's key for today's customer: delivery options. For example, Amazon recently expanded its in-garage delivery to more than 4,000 cities. It initially was available in only 50 cities.
Another monster
It's worth mentioning that while Amazon's stock market gains were significant this year, they weren't the biggest. Biotech company Novavax (NVAX 2.31%), for example, posted the best performance of any stock. It surged more than 2,000%. So holding onto Amazon didn't mean owning the top performer of the year. And that's OK. Instead, holding onto this Amazon represents a smart long-term move.
Here's why: Even if the crisis ends, shoppers have grown to enjoy the convenience of shopping online. And prior to the outbreak, more and more consumers were shopping online. Global retail e-commerce sales are forecast to reach $6.54 trillion in 2023, according to Statista. That's an 85% increase from last year. I think Amazon's gains are set to continue, regardless of the length of the coronavirus pandemic.
So, the smartest investors would continue holding onto Amazon shares in 2021, in my view. And probably a lot longer.
