A Magnificent Seven Stock Enters the 'Buy Zone'
Here's why and how I established a new position in this iconic juggernaut.
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My regular readers know that throughout most of last year I was growing more concerned about the valuations of the so called "FAANG" stocks that drove the majority of the gains in the market in 2023 and 2024. A pullback took longer than originally expected, but 2025 has seen these stocks lose some of their momentum and tumble back to more reasonable valuation levels. While I am still not ready to pull the trigger on the likes of Apple AAPL, there's one member of the Magnificent Seven I have established an initial holding in via covered call orders.
On Friday I dipped my toe in the water with online retailing powerhouse Amazon AMZN as the trading week was nearing its close. Shares in Amazon have fallen back by more than 15% from their highs earlier this year. Options are extremely liquid against the stock, and I don’t mind either taking a profit in the low teens over the option duration or accumulating shares in this market stalwart at lower entry points.
Amazon recently surpassed Walmart WMT in quarterly sales. Its packages arrive regularly here at the Jensen household. Other than Walgreens WBA and the local grocer, I rarely go into a brick-and-mortar retail store anymore. I also get the majority of my groceries delivered via Whole Foods, also owned by Amazon— an experience shared by myriad Americans these days.
The company has one of the most effective logistics networks ever created. Its cloud management services business has boosted growth as well as margins, and the company is making large capital investments in this business, especially around AI to ensure this will continue to be a core growth engine for Amazon. Meanwhile, the company’s advertising business is growing in the high teens and has years of solid growth ahead of it.
New tariffs are a legitimate concern and probably will remain a headwind, but they should be manageable and have marginal impacts on margins. Amazon has a solid balance sheet, and its huge investments are being funded out of free cash flow.
The stock is never "cheap." However, few companies can match Amazon’s ability to consistently churn out revenue and profit growth. Currently, Amazon is projected to deliver sales growth of roughly 10% and earnings growth of 15% annually over the next couple of years.
With the recent pullback in AMZN, the stock is only being priced at a slight premium to the overall S&P 500. Therefore, it felt time to pull the trigger on this iconic American juggernaut.
Option Strategy
This is how one can initiate a holding in AMZN with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the October $190 call strikes, fashion a covered call order with a net debit in the $170.60 to $170.80 a share range (net stock price - option premium).
This strategy provides downside protection of 14% with upside potential of just over 11% even if this equity trades down 5% over the option duration.
At the time of publication, Jensen was long AMZN.
