By Horacio Marquez
Contributing Editor
Money Morning

We have been front-running many very positive catalysts since I first recommended buying Amazon.com Inc. (Nasdaq: AMZN) on Feb. 5.

First, that put us ahead of the bull-market rebound in U.S. stocks that started in early March. My recommendation also predated the launch of Kindle 2, as well as stimulus measures deployed by the United States and China in April.

Just as predicted, the U.S. economic recovery has gathered momentum and Amazon has benefited greatly by offering a compelling value proposition to a cash-strapped consumer. 

The loose monetary policy and the massive fiscal stimuli of the U.S. Federal Reserve and the weak U.S. dollar have combined to fuel a rally of the Nasdaq Composite Index and Amazon has outperformed the whole way. 

In June, I recommended that long-term holders maintain their positions in Amazon, and that traders start reining back positions gradually as valuations became extended.  And I took that slightly conservative position, despite my deep conviction that Amazon stock remained unquestionably bullish.

Amazon reported solid second and third-quarter earnings, and the stock has almost tripled from my initial February recommendation.  In fact, the company blew the top of Wall Street estimates and kept running strongly. Operating margins expanded from 3.6% to 4.6% in the third quarter. That improvement is mammoth for a rabid discounter that thrives on volume.

What has this meant for investors? The day before my February recommendation of Amazon, the company’s shares closed at $61.06. By the third week of June, when I reiterated my recommendation, Amazon’s shares had climbed to $82.96 – a gain of nearly 22% in just four months.

Amazon’s shares closed Friday at $132.97, a jump of 60% since the third week of June and a total gain of 118% in the nine months since I labeled Amazon’s shares as a “Buy.”

What can we learn? In the technology sector, one must always be looking ahead to the next wave and its financial implications. With their debates about the future distribution of content – with digital distribution poised to take the place of CDs and DVDs – analysts have failed to factor in that Amazon has found a way to stay in the game: Kindle. Just as MP3 players and iPods have changed the music publishing industry, Kindle has revolutionized the publishing business.

In addition, Amazon has identified another segment of the IT business where it excels: managing a huge, highly efficient storage and computing infrastructure. It has launched its vaunted cloud computing platform, which allows users to rent these capabilities in order to store information and compute it while being linked online to Amazon’s infrastructure.

This allows businesses to outsource the headache of maintaining and optimizing their own infrastructure. It also increases the security and integrity of user data.

So, just as Amazon’s superior online shopping and infrastructure capabilities enabled its runaway leadership in online sales, its innovation will help the company succeed in streaming content like movies and music online.

However, some clouds are beginning to dot the horizon.  Wal-Mart Store Inc.’s (NYSE: WMT) expansion into this field cannot be ignored. And in the hi-tech gadget field, where Amazon is not traditionally been a force, we have seen other players looking to dethrone the Kindle’s success, including Apple Inc. (Nasdaq: AAPL).  The latter is a threat that nobody can slight, given its tradition of obliterating its competition with superior design and functionality.

Of course, even if Apple or others succeed in stealing market share from Amazon in the e-reader market, they won’t dent Amazon’s leadership in selling published content.  In addition, the global roaming capabilities of the Kindle will allow sophisticated clients worldwide that have Amazon accounts to buy its content, expanding the reach of digital book sales no matter which country they’re in.

In any case, we are going to take our original capital out in recognition of the near tripling of our investment and let the rest ride.

Regardless of the outcome of the reader device wars, Amazon will likely benefit from increased online sales and the secular growth explosion that is taking place in the industry.  So I am still confident that, even at these lofty valuations (the stock is trading at 78 times earnings), Amazon will do very well in the long term.

Recommendation: Take your original capital out of Amazon.com Inc. (Nasaq: AMZN) and let the rest ride long term (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Amazon.com Inc.

[Editor's Note: Commodities are hot. In some cases, white hot.

Oil, gold and silver are the hot commodities of today. But the shrewdest investors will look toward the horizon, and try to project just what the commodity profit plays of the future will be.

If you need help, just ask Money Morning's Horacio Marquez.

As worries about oil escalate - whether those worries are about future supplies, future prices or global-warming - more and more muscle is being placed behind alternative power technologies. That's especially true in the hybrid vehicle market, where a specific technology has emerged as the clear leader.

The technology is lithium-based rechargeable batteries, and its emergence is sending lithium demand skyrocketing.

The profit potential of this market is stunning - but only for investors who can figure out the right way to play it.

Here's the thing: Marquez - a Money Morning contributing editor who also edits the Money Map VIP Trader - has uncovered the lithium-tech leader.
This company is a global player with a solid market cap and is well known within the hybrid industry. But surprisingly few investors know about the company, or have ever even heard its name.

To learn more about this company - to get in ahead of the masses - and to find out more about Marquez's Money Map VIP Trader, please click here.]

News and Related Links:

• Money Morning:

  Buy, Sell or Hold: Amazon.com Inc. (Nasdaq: AMZN) Remains Unquestionably Bullish

• Money Morning:
  Buy, Sell or Hold: Amazon Stock is Positioned as a Long-Term Winner
• Money Morning:
  How Sustainable is the Kindle’s Early Success?

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