We invest to make more money, do the things in life that we want, and have enough for a comfortable retirement. It has always been good advice to balance your investment portfolio with a combination of the very safe and the somewhat risky investments with growth potential. We often mention our article about how to invest without losing any money. Although the main focus is on cash in the bank, treasuries, and corporate bonds we also give a nod to value investments which are “safe stocks.” Unfortunately, many investments previously thought to be safe have been destroyed in the era of online sales. Our question right now is which of your safe investments will Amazon.com kill next?
What Are You Paying for a Safe Investment and Is It Really Safe?
This is a valid question in our extended bull market. Investors are paying a premium for companies with strong balance sheets and a long history of success. But, is the price you are paying going to protect you? Forbes writes that in many cases safe stocks are no longer safe.
You probably know that fast-growing stocks in exciting industries may be pricey. But boring, slow-growing stocks are often expensive, too, if they’re perceived as safe.And while you might not realize it, there’s a good chance you’re paying through the nose to keep your money safe.
Their first point is that investors pay a price for perceived investment safety. Then the problem is whether or not the price you pay is really buying safety as they look at P&G versus Amazon.com.
They make the point that the average P/E ratio in the S&P 500 is 21 while the P/E ratio for P&G is 25. A main selling point for these folks is that when the stock market crashed a decade ago P&G fell by a percent or so. The risk Forbes sees is that Amazon.com is moving into P&G’s product line by delivering dish soap, diapers, and batteries to people’s door every day. If you wonder which of your investments will Amazon.com kill next, wonder if Procter & Gamble is on the list.
A List Investments at Risk of Being Killed off by Amazon.com
Kiplinger goes beyond Forbes by looking at dozens of companies whose very existence is threatened by Amazon.com and online sales in their article, 49 Companies Amazon Could Destroy.
Amazon is willing to try its hand at almost any sort of business, does well at the bulk of them – and threatens to destroy dozens of other companies with its success.
From groceries to online pharmacy sales with a foray into video game development as well, Amazon.com tries its hand at anything and usually succeeds. If you have several safe investments in your portfolio and Amazon.com decides to move into that niche, how safe are you. Here is the beginning of the list that Kiplinger put together.
O’Reilly Automotive (ORLY), AutoZone (AZO) and Advance Auto Parts (AAP)
As delivery networks get better and inventory management technology improves, these previously safe businesses are now worried.
Kroger (KR), privately owned Albertsons and the grocery arm of Walmart (WMT)
People are getting more and more comfortable with ordering all sorts of food items and even snacks to be delivered to their home, especially with Amazon Prime and no charge for delivery.
Audiobooks.com and Playster
These folks are directly threatened by Amazon.com and their own company, Audible.
Barnes & Noble (BKS) and Joseph-Beth Booksellers
These folks are still hanging on despite worse sales figures every year. It is only a matter of time.
Beam, Dailymotion, Hitbox, Mixer, YouTube Gaming and More
This niche is about people paying to watch other people play video games. And Amazon.com has the most popular platform, Twitch. This is one more niche that they intend to own.
Despite an impressive turnaround, Kiplinger thinks that these folks will be driven down by Amazon.com in the end as people will opt for lower prices and home delivery.
Duracell, Energizer Holdings
This last one gets us back to the safe stock niche. These are leaders in the market and Duracell is one of Berkshire Hathaway’s holdings. Although Amazon.com does not have a well-recognized battery brand behind them, they do have pricing, delivery, and customers who are simply used to buying from Amazon.com.
Which of your safe investments will Amazon.com kill next? Take a look at the Kiplinger article for the complete list.
What Are Safe Investments in a Competitive World?
Any student of investing knows how Sears went from being the retail giant of the world to an afterthought. Likewise, we all know how digital photography virtually removed Kodak’s reason to exist. But, we have always believed that a product that people will always consume with a strong brand name will last forever. Procter & Gamble is a well-run company that fields a lot of brands and essentially wrote the book on business management. Coca Cola is known and consumed everywhere on the planet. But, in both cases, management needs to keep up with the times, effectively manage product lines and listen to what consumers are saying. A sad of example of an old company not doing that is the Kraft Heinz fiasco.
We always suggest that investors use the principle of intrinsic stock value to guide their investing. We also mention in that article that the trick to making the concept work is to learn how to anticipate future earnings. When experts like Warren Buffett throw out 95% of their evaluations as too difficult to pick, what is the average investor to do?
First of all, the average investor does not need hundreds of stocks but rather just a handful. Understanding how the company makes its money and how it will withstand threats, like Amazon.com, are basic to good analysis. And, the other rule is to pay attention as you go. With stocks like Procter & Gamble you can sleep at night but should spend a little time each year thinking about whether to add more to that stock or buy something else.