Hot Stocks: Amazon Looks to Be a Beam of Light in Foggy Retail Picture

Forecasts for holiday retail sales my not exactly be glowing but there's a good chance that Inc. (Nasdaq: AMZN) - the world's largest online retailer - will again buck the negative trend that has gripped the retail industry for the past year.

Estimates for holiday retail sales this year range from a 1% gain to a 1% decline, the latter of which would make for the industry's first back-to-back dip on record, according to The Wall Street Journal.

Online sales excluding travel this year are expected to be $156.1 billion, up 10% from 2008's take, according market research firm Forrester Research Inc. (Nasdaq: FORR).

Despite last year being the worst retail environment since at least 1970, Amazon said the 2008 holiday season was its "best ever." The company reported fourth quarter earnings 33% higher than Wall Street estimates. And its sales gain of 4% would have been 20% higher if it weren't for a negative impact from exchange rates.

"Online [shopping] has definitely been impacted by the economy, but remains one of the biggest bright spots in retail," BIGresearch LLC senior analyst Pam Goodfellow told members of the press in a conference call yesterday (Tuesday).

E-commerce sites, often used as a research tool for purchases, may draw consumers in with lower prices.

"If consumers can find a better deal online, they're going to purchase online," Goodfellow said.

FBR Capital Markets Corp. (Nasdaq: FCBM) yesterday raised its price target and earnings estimates for Amazon. FBR anticipates another solid holiday quarter for the e-commerce giant, setting its new price target at $95 a share, up from $85 previously.

Shares of Amazon were up 2.53% to close at $90.91 yesterday.

FBR now expects Amazon revenue for its fiscal year ending December 31 to be $22.75 billion, up slightly from a previous estimate of $22.72 billion. The firm cited Amazon's strength in the media business, an improving outlook for the book and video game business, and less severe headwinds from declining DVD and music sales.

Earnings are now expected to be $1.73 per share, up from an estimate of $1.67.

"We continue to look for an attractive entry point to upgrade AMZN and feel that any material weakness in the stock, improvement in fundamentals, or a combination thereof could create that opportunity," FRB said.

Amazon's growing scale and sophisticated inventory management system, which was used to leverage lower prices on some products, helped the company defy the sector's sagging sales last year, analysts said. While most retailers were ordering products early in the fall, the online-only Amazon could wait as late as November to place its orders.

"Amazon was able to restock when nobody else was restocking," Majestic Research analyst John Aiken told The Journal. "As demand was falling off a cliff, they could get better rates."

With those better rates, Amazon was able to pass the savings on to consumers, who today are still looking for bargains amid rising unemployment and the looming prospect of a jobless recovery. The recession has been a boon to discounters like Dollar Tree Inc. (Nasdaq: DLTR) and Family Dollar Stores Inc. (NYSE: FDO).

Money Morning Contributing Editor Horacio Marquez, an investment banker with more than 20 years experience, is bullish on Amazon for the long term.

"Amazon continues not only to maintain a commanding lead in online retailing, but it keeps building on that lead," Marquez wrote last summer in his weekly Buy, Sell or Hold column. "The basis of such expansion resides in price, convenience and innovation.  Price has become a much more important variable to consumers in the recession and will continue to be important in the years ahead, as the battered consumer struggles to rebuild wealth lost in the housing and stock market blow-ups."

Since Marquez's column, Amazon stock has enjoyed an 8% gain despite missing analysts' forecasts in the second quarter.

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