3 Stocks to Amazon.com, Inc.-Proof Your Portfolio

Protect you portfolio from Amazon.com, Inc. (NASDAQ:AMZN) and the rapid expansion of online retailing by investing in Pure Industrial Real Estate Investment Trust (TSX:AAR.UN), Dollarama Inc. (TSX:DOL), and one other stock.

| More on:

Photo: Fool Editorial. All rights reserved.

The ubiquitous rise of Amazon.com, Inc. (NASDAQ:AMZN) has created one of the greatest challenges that the retail industry has ever faced. Traditional brick-and-mortar retailers have gone into meltdown, closing stores and, in some cases, even going out of business. This can be attributed to the meteoric rise of e-commerce behemoth Amazon, which has fundamentally challenged the traditional retail model and brought it crashing to earth.

Nonetheless, there are ways to protect your portfolio against Amazon and even profit from the explosive growth of e-commerce with these three stocks. 

Now what?

The first opportunity is Pure Industrial Real Estate Trust (TSX:AAR.UN), which owns a portfolio of 165 income-producing light industrial properties across the U.S. and Canada.

The collapse of brick-and-mortar retailers has challenged the viability of shopping malls. After the U.S., Canada’s shopping malls have one of the highest densities of gross leasable area per capita globally. The loss of major anchor tenants, such as department stores, will trigger sharply lower demand for leasable retail floor space, casting a cloud over the profitability of retail REITs.

However, the rise of e-commerce has been a boon for industrial REITs, and nearly a third of Pure Industrial’s portfolio is represented by e-commerce, while another 44% is comprised of transportation and logistics. Demand for these types of services is growing at a rapid pace, because of the blistering rate at which online retail is expanding, causing the need for warehousing to grow at a brisk clip.

As a result, demand for light industrial properties is outstripping supply, leading to higher rents and occupancy rates, which will act as a powerful tailwind for Pure Industrial’s earnings. This is evident from its earnings for the first six months of 2017; adjusted net operating income popped by a massive 25% compared to a year earlier, and Pure Industrial’s occupancy rate at the end of that period was an impressive 97%.

Next is Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), which reported a solid third quarter 2017. Adjusted earnings per share grew by 6% year over year. This can be attributed to a solid 3% uptick in the volume of carloads transported, which was underpinned by a marked increase in the volume of metals, minerals, and consumer products transported during the quarter.

This trend will continue over the long term, because rail remains the only economic means of transporting bulk freight. Demand for bulk transportation will grow because of a stronger global economy as well as growing demand for transport services created by e-commerce, which will benefit Canadian Pacific’s intermodal and consumer products transport operations.

Finally, high-volume, low-margin dollar retailers such as Dollarama Inc. (TSX:DOL) are virtually Amazon-proof. The combination of convenience and low prices is difficult for Amazon to match, making it almost impossible to attract the type of customers who shop at dollar stores. That is compounded by the low margins associated with the types of goods sold, making it uneconomic for Amazon to sell and ship these items to customers.

The strength of Dollarama’s operating model is evident from its second-quarter results. Sales grew by almost 12% year over year, the gross margin shot up by 1.2%, and EBITDA expanded by an impressive 24%. That all contributed to a massive 31% increase in net earnings per share. This trend will continue for the foreseeable future, as the popularity of Dollarama grows, its product line improves, costs fall, and it keeps opening new stores.

So what?

While big-box retail remains under considerable pressure, these three companies are immune to Amazon’s relentless assault on traditional retail and, in fact, will profit from retail’s e-commerce driven evolution.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

More on Investing

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Investing

Is Canadian National Railway Worth Buying for its 2.2% Dividend Yield?

Let's dive into whether Canadian National Railway (TSX:CNR) is a top buy for long-term investors at this point in the…

Read more »

nuclear power plant
Energy Stocks

Is Cameco Stock Still a Buy?

Cameco stock recently reported earnings that showed the Westinghouse investment is creating some major costs. But that could change.

Read more »

cloud computing
Dividend Stocks

Insurance Showdown: Better Buy, Great-West Life or Manulife Stock?

GWO stock and MFC stock are two of the top names in insurance, but which holds the better outlook?

Read more »

analyze data
Dividend Stocks

Here’s Why the Average TFSA for Canadians Aged 41 Isn’t Enough

The average TFSA simply isn't enough for most Canadians in their early 40s. Here's how to catch up.

Read more »

A plant grows from coins.
Dividend Stocks

The Smartest Dividend-Growth Stocks to Buy With $1,000 Right Now

New dividend-growth investors should consider CN Rail (TSX:CNR) stock and another top play if they're looking to build wealth over…

Read more »

concept of real estate evaluation
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on It

Canadian REITs can turn your TFSA into a monthly paycheque machine for life. Here's how Morguard North American Residential REIT…

Read more »

Start line on the highway
Investing

2 No-Brainer Growth Stocks to Buy Now With $5,000 and Hold Long Term

Market conditions today are ideal for growth investing, and two rising stocks are no-brainer buys in November.

Read more »