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How to bet on Amazon without having to pay $1200 a share


Amazon (AMZN) may be known for bargains, but the price of a single share of the e-commerce behemoth could be too expensive for many retail investors. After a blockbuster holiday shopping weekend, it hit a record high of $1205 per share on Cyber Monday, representing 58% year-to-date growth.

But buying Amazon’s pricey stock isn’t the only way to get exposure to the e-commerce giant, analysts from BMO Capital Markets argued in a recent research note.

There are alternative ways to make money off Amazon, they say. One option is owning the companies that power Amazon’s booming e-commerce business. Alternatively, you could take the opposite approach by investing in anti-Amazon companies.

Own the logistics of Amazon

Amazon’s so-called logistics include not only the packing, shipping and transportation industry, but also infrastructure providers like telecom and tech giants.

“From day to day, you still need the companies to turn on Amazon,” Brian Belski, Chief Investment Strategist at BMO Capital Markets, tells Yahoo Finance.

He named a few companies on the logistics chain for Amazon: AT&T (T) and Yahoo parent company Verizon (VZ) offer internet infrastructure to make shopping online possible; meanwhile, International Paper (IP) supplies almost half of the cardboard boxes used by Amazon.

“If you only own Amazon (stock), it’s not a diversified way to own Amazon,” Belski says.

He says investing in Amazon’s business across industries can reduce the idiosyncratic risk of owning a single stock. This resembles a “pick-and-shovel” strategy in investment, which means putting money in providers of necessary equipment for a company, rather than its end product.

Employees sort packages at the Amazon distribution center warehouse in Saran, near Orleans, France. REUTERS/Philippe Wojazer
Employees sort packages at the Amazon distribution center warehouse in Saran, near Orleans, France. REUTERS/Philippe Wojazer

While most of the aforementioned companies don’t entirely rely on Amazon to generate revenue, some have reported attractive returns in the online retail revolution. Big-name investor Louis Navellier recommended Packaging Corp. of America (PKG), a major producer of containerboard for Amazon, during an interview with CNBC.

“They are benefiting immensely from online sales,” Navellier says. The stock of the Illinois-based manufacturer has gone up by 31% since the beginning of this year.

Own anti-Amazon companies

In their research note, the analysts at BMO Capital Markets note that at some point “the party will be over” for Amazon if it’s actually valued on earnings. To hedge against that risk, it suggests investing in a few “anti-Amazon companies:” Competitors with comparative advantages and big players in capital-intensive areas.

Despite challenges faced by brick-and-mortar stores, BMO analysts see wholesalers like Costco (COST) and discount retailers like Walmart (WMT) still being able to compete against Amazon. In September, Home Depot (HD), the largest US home improvement chain, got a bullish call from BMO — which named it among 14 stocks that can be the most insulated from Amazon’s disruption with “enough unique product and service attributes.”

Even if you’re not interested in investing in the retail industry at all, BMO says you can still own the anti-Amazon theme by looking into areas where the tech giant hasn’t set foot in, including hospitality, waste management and the energy sector.

Krystal Hu covers e-commerce for Yahoo Finance. Follow her on Twitter.

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