As growth investors we have to be a little bit like Rip Van Wrinkle. We must try to imagine the world 25 years from now. A world that’s not completely different but a little bit better – then find the companies that are in the middle of that change.
As the world’s largest eCommerce company, Amazon.com, Inc. (NASDAQ:AMZN) is in the middle of this change as the company single-handedly rearranges the face of retail.
Why it’s a core stock
Amazon.com, Inc. (NASDAQ:AMZN) is completely changing the way we shop in three ways:
First – As an on-line retailer Amazon.com, Inc. (NASDAQ:AMZN) is completely free from the traditional limits of brick-and-mortar companies. Rather than practice the art of merchandising by trying to appeal to the average consumer, Amazon.com, Inc. (NASDAQ:AMZN) can simply supply everything to everyone.
Second – The advent of chain department stores eliminated the personal relationship between the customer and the merchant. But that’s not the case online. Amazon.com, Inc. (NASDAQ:AMZN) has the ability to collect useful information about each shopper though their transactions and develop a personalized shopping experience.
Third – Tablets and smartphones makes shopping instant. Today, consumers are starting to make purchases from their mobile device the second a need arises rather than adding it to a shopping list for a later date. With the best mobile apps, consumers are turning to Amazon.com, Inc. (NASDAQ:AMZN) first. This is the ultimate impulse purchase and it’s a new frontier for retail.
Of course, eCommerce has been discussed since the advent of the internet but many investors still fail to recognize the category’s potential. According to estimates provided by eMarketer, U.S. eCommerce sales will total $260 billion in 2013 and is projected to grow to $434 billion by 2017. Already, eCommerce accounts for 6.0% of total retail sales and some analysts think this figure could hit as high as 20%.
Amazon is the single best stock to play this secular growth trend with the company accounting for 15% of U.S. eCommerce sales in 2012. Amazingly, Amazon is actually gaining market share as sales grow three times faster than the category as a whole.
This is the network effect in action! Amazon.com, Inc. (NASDAQ:AMZN) is a bigger retailer because it’s better. Amazon is a better retailer because it’s bigger. Over time growth will allow the company to achieve the scale necessary to ensure its position as the lowest cost provider and foil future disruptors that attempt to copy its business model.
Risks to out watch for
Of course, when dealing with such an aggressive growth stock, there’re a host of challenges investors need to keep a close eye on. The most important of which is competition.
Google certainly has the potential to be successful in this space. Its search engine is one of the first places people visit when they want to find a product. Google also has the scale and resources to pull it off. According to Forrester Research, online commerce sales could exceed $370 billion by 2017. If Google Inc (NASDAQ:GOOG) can grab a piece of that action, eCommerce would be a huge growth driver on top of the company’s successes in both search and mobile.
However so far that theory hasn’t played out – Wal-Mart Stores, Inc. (NYSE:WMT)’s shipping costs are still about 1.5 times that of Amazon’s and has prevented the company from gaining market share. Last year Wal-Mart.com grossed an estimated $7.7 billion compared to $61 billion for Amazon. But if Wal-Mart can fix its logistics system, eCommerce could represent a huge catalyst for the stock.
Foolish bottom line
However, both of these companies have been making attempts to enter the eCommmerce space for years – a decade in the case of Wal-Mart Stores, Inc. (NYSE:WMT) – without much success. Amazon remains the dominate player. Because of its stable position in fast-growing eCommerce category, Amazon belongs as a core holding in your portfolio.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 7 Core Growth Stocks for Your Portfolio – Amazon originally appeared on Fool.com is written by Robert Baillieul.
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