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Amazon ‘Undervalued’: Portfolio Manager

Wednesday, 15 May 2013 | 1:19 PM ET
Amazon.com 'Undervalued': Portfolio Manager
Wednesday, 15 May 2013 | 12:20 PM ET
The benefits of scale will show that Amazon.com shares are relatively cheap now, Ken Allen of T. Rowe Price says.

Amazon.com's performance over time will prove that shares are relatively cheap now, T. Rowe Price portfolio manager Ken Allen said Wednesday.

"Amazon is underearning its business model by a lot, and it's because management is making what I think are very smart investments in barriers to entry in both the e-commerce and the Amazon Web Services cloud computing business, such that the durability of Amazon's high growth is really strong and among the best of any company that I look at," he said.

On CNBC's "Fast Money," Allen said that he expected Amazon.com to continue to innovate.

"It's not that they'll stop investing. It's that they'll moderate investments as some of the benefits to scale increasingly come through," he said.

Allen noted that Amazon.com's cash-flow margins were in the single digits "three or four years ago," which provides evidence that the online retailer could generate sufficient revenue.

"Getting back to those levels would reveal the stock to be quite undervalued, in my view," he added.

Allen also said that cloud computing was here to stay.

"You have to focus on cloud as a tech investor at this point," he said. "It cuts across the industry, across subsectors."

Allen said that pure cloud plays didn't hold all the opportunity, adding that Microsoft, "to an extent, is an example of a play that cloud is a better setup than investors think."

Improvement in metrics for Microsoft's non-PC business would bode well for the company, he said.

"I think that is a really big deal for alleviating some of the cloud, so to speak, that's been hanging out over the stock," he also said, touting the company's "renewed momentum."

Allen also added that the stock was undervalued.

"I think that the market is shifting from being paranoid about what will happen to the Windows PC business and looking at the enterprise software business, which has historically been a great growth driver and historically really underappreciated," he said.

Trader disclosure: On May 15, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Jon Najarian is long MSFT; Jon Najarian is short NEM; Jon Najarian is long JNPR; Jon Najarian is long BG; Jon Najarian is long EMC; Jon Najarian is long GTAT; Jon Najarian is long OC; Jon Najarian is short TSLA; Jon Najarian is long ZNGA; Steve Weiss is long AAPL; Steve Weiss is long BAC; Steve Weiss is long C; Steve Weiss is long BBRY; Steve Weiss is long M; Steve Weiss is long BA; Steve Weiss is long AAMRQ; Steve Weiss is long LCC; Steve Weiss is long UAL; Steve Weiss is long THC; Steve Weiss is long BBY; Steve Weiss is long F; Steve Weiss is long SODA; Stephanie Link is long AAPL; Stephanie Link is long GS; Stephanie Link is long JPM; Stephanie Link is long WFC; Stephanie Link is long CSCO; Stephanie Link is long PF; Mike Murphy is long BAC; Mike Murphy is long INTC; Mike Murphy is long FB; Mike Murphy is long F;

For Mike Mayo
Morgan Stanley; The research analyst(s) or his/their household member(s)/associate(s) has/have a financial interest in the securities or related securities of Morgan Stanley; CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) managed or co-managed a public offering of Goldman Sachs's securities in the past 12 months; CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) participated in a public offering of Goldman Sachs's securities or received compensation for investment banking services from Goldman Sachs in the past 12 months; CLSA and/or Credit Agricole Securities (USA) Inc receives or has received compensation from Goldman Sachs for non-investment banking services (eg‚ brokerage services) in the past 12 months; CLSA and/or Credit Agricole Securities (USA) Inc and/or the analysts involved in the preparation of this report have reason to know that an affiliate of Credit Agricole Securities (USA) Inc and/or CLSA received compensation from Goldman Sachs for non-investment banking products/services in the past 12 months; CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) managed or co-managed a public offering of Morgan Stanley's securities in the past 12 months; CLSA and/or Credit Agricole Securities (USA) (and/or their respective affiliates) participated in a public offering of Morgan Stanley's securities or received compensation for investment banking services from Goldman Sachs in the past 12 months; CLSA and/or Credit Agricole Securities (USA) Inc receives or has received compensation from Morgan Stanley for non-investment banking services (eg‚ brokerage services) in the past 12 months; CLSA and/or Credit Agricole Securities (USA) Inc and/or the analysts involved in the preparation of this report have reason to know that an affiliate of Credit Agricole Securities (USA) Inc and/or CLSA received compensation from Morgan Stanley for non-investment banking products/services in the past 12 months; The research analyst(s) or his/their household member(s)/associate(s) has/have a financial interest in the securities or related securities of Morgan Stanley.


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