NFLX is his third-best stock to buy now, about 68% undervalued at $70 versus a $117 fair value. He expects long-term EPS growth near 21% on ~10-12% revenue growth, aided by a durable content library and AI-lowered costs, though estimates have fallen from ~30% and short-form content is the biggest long-term risk.

But in this video, I wanted to compare my third and fourth stocks to determine which is the third best stock to buy right now between Netflix and Amazon.

The competition is very close for me, as I own both companies and I am trying to determine which one is better in third or fourth place. Let's compare these two interesting companies, both of which are undervalued, both of which are on the list of the top 10 stocks to buy, and both of which are in my investment portfolio.

In the long term, analysts who follow Netflix and Amazon expect very similar earnings per share growth of around 21%.

But what's interesting to me is that Netflix's earnings per share forecast is declining, isn't it?

You can understand why this is and recognize the connection; Netflix's stock has fallen significantly over the past year, primarily due to investor sentiment.

Certainly, revenue growth is slowing down, and engagement numbers aren't growing much, only at very small rates. And there is a significant decline, as you know, investor sentiment towards Netflix is extremely low.

You can see that since 2024, earnings per share estimates have decreased from about 30% to 21%. That represents roughly a third, or a 33% decrease, in Netflix's long-term earnings per share forecast, right? Over the next several years.

For Netflix, I feel these earnings per share estimates are reasonable and are around 21%. Its revenue is likely to grow by about 10%, possibly 12%, and its earnings per share are growing at a faster rate than its revenue because its costs are relatively fixed.

The additional subscriber does not cost Netflix any extra money. They have already produced the content. But they indicate that they will be spending more money on content. They will spend more money on sports content, and the content budget is increasing at a faster pace.

For this reason, I estimate that Amazon's earnings per share forecast for the next few years will be better than Netflix's earnings per share forecast for the next few years.

In this category, Netflix outperformed Amazon and many other companies, quite frankly, by 30%, and that number continues to rise.

And as for Netflix. This business model is very attractive to me. They spend money on content, and that content lasts for decades, even longer. When they make a film, that film stays on the platform forever.

Thus, the next Netflix subscriber gets much greater value, because they now have the cumulative advantage of all the content that Netflix has created over the past decade and more.

This advantage will multiply over the next few years and decades as Netflix continues to create its own content and improve its production capabilities. Artificial intelligence reduces the cost of creating this content, so they will be able to offer better content for the same price or produce the same amount of content for a lower price.

Therefore, this will be to Netflix's advantage in the coming decades.

Remember that the company actually started creating original content around 2013. So, I've just started building that content library, and I've already created a very strong library, to the point that a new subscriber gets all seasons of "House of Cards," "Stranger Things," "Bridgerton," "Squid Game," and the list goes on of series and original content that Netflix has produced over the past decade and more.

This will only serve to reinforce itself in the future.

Netflix also shows better returns on invested capital compared to Amazon, but Amazon is rapidly closing that gap. Netflix at 30.6% and Amazon at 22%.

One factor is that artificial intelligence helps reduce the cost of content. Another thing is that hiring someone to work on a movie or TV series is a very attractive job... There are many individuals who would like to participate in some of these successful programs and series, to the point that the cost of doing so will not be high, and there will be more and more people interested in participating in this matter.

If you pass by any of the studios during a rehearsal or audition for a role, you can see queues stretching around the building from the number of people applying to audition for that role.

Therefore, in my opinion, the cost of creating content will either remain stable or decrease, while the costs of building Amazon's asset base will increase in the long run.

Similarly, I compared the valuation using a discounted cash flow model and calculated a fair value for Amazon at 317 compared to its market price of 262, which is about 21% less than its true value.

For Netflix, I calculated a fair value of 117, while the current market price is 70, meaning it is undervalued by about 68%.

Therefore, the biggest risk I see for Netflix is the shift in consumer behavior, with people spending more time consuming short-form content. This is a category where Netflix does not excel.

This is a category where content creators who produce short-form content can do a better job of attracting consumers' attention. These are TikTok, Instagram Reels, YouTube Shorts, and others.

This is a category that Netflix is trying to create, you know, its own version of short-form content, and it will perform relatively well, but not as well as it does with long-form content.

Therefore, this is my biggest concern about Netflix in the long term: the diminishing attention span of people and the dominance of short-form content in the time they spend watching.

I've shared with you the earnings per share estimates for Netflix and Amazon, haven't I? 21% in the long term. But Amazon has spent nearly $200 billion on capital expenditures over the past several years, and will probably spend the same amount over the next few years.

Meanwhile, Amazon...I mean, Netflix will spend approximately $20 to $30 billion annually on content. And the money that Netflix spends on content, that content will remain forever.

Mostly, some of it may be ephemeral, such as a sporting event, or some of it may be licensed content from another studio. But a large proportion of that budget that Netflix will spend on content will remain on the platform forever.

Therefore, that cumulative benefit will continue for a very long time.

So it's a difficult decision for me. I love them both. I own both of them. I have ranked both highly on my list of best stocks to buy, but if I had to pick one to buy, and the ones I think are third and fourth, I would say Netflix is third and Amazon is fourth.

But they are both wonderful. I own both of them. You don't have to choose between them. You can own them both, as I did, and I am interested in adding more of both to my investment portfolio.

You will probably watch this video after Netflix announces its quarterly earnings results. Netflix, I'm recording this video on Monday, October 19th. Netflix is scheduled to announce its earnings tomorrow after the markets close, on October 20.

I will be live streaming Netflix's earnings results to my channel members...