What Is the Blockchain?

The blockchain is a distributed ledger technology. It is a way to keep records in many locations, protect them from being changed, and provide access to all who use the system. Because data in this system cannot be retroactively changed it is very secure. Because blockchain use is anonymous it provides privacy to its users. Most people know about blockchain because it is the motor that drives cryptocurrencies. However, that “motor” can have other uses including digital voting, copyright protection, loyalty and reward programs, digital IDs, wills, medical records, real estate transfers and more.

Blockchain Stocks

When looking for blockchain investment opportunities there are several stocks to consider. Some companies provide services related to blockchain. Others work in the cryptocurrency realm. There are also companies that use products and services related to blockchain to run their businesses. The following are companies that offer blockchain opportunities in one or more ways. In general, the most secure investments in this niche are in companies that will profit from blockchain but have other solid assets and ways to make money.

CME Group

This the largest options and futures exchange in the world. Besides derivatives for Forex, indexes, commodities, and stocks CME Group offers cryptocurrency futures. CME Group earns a fee for every cryptocurrency futures transaction as well for all other futures and options trades. Currently, CME Group offers futures on Bitcoin and Ethereum and will likely add others as market interest dictates. This company fits our criteria for making money from blockchain on top of an otherwise solid business.

MasterCard

The blockchain has the potential to make MasterCard’s business more efficient and more profitable. These folks are processing more and more credit and debit card transactions. The blockchain will be useful in speeding up cross border transactions and making them less expensive. To this end MasterCard is partnering with R3, a blockchain tech company. Its Crypto Card program will let it partner with companies in the Asia-Pacific region as it launches MasterCards that are funded by crypto assets.

DocuSign

This company is the leader in the technology for electronic signatures. Their services cut down on the costs of printing, sending, storing paper documents by about $38 per transaction according to the company. They incorporated blockchain in their business processes in 2015 using the Ethereum blockchain. This is an example of a strong and growing company that uses blockchain to increase their efficiency and grow their profits.

Amazon.com

Amazon’s Web Services where they provide cloud infrastructure also provides Amazon Managed Blockchain. This service lets customers create and run their own blockchain network. The revenue stream from this part of Amazon’s operations is a tiny fraction of what Amazon earns but offers a place to start for those interested in using blockchain in their own business. Because blockchain is a tiny part of their business it is not a practical reason to invest in the company but their managed blockchain services can be an efficient way to add blockchain to your own business without starting from scratch.

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Investing in Amazon.com

Amazon.com was founded in 1994 and has traded on NASDAQ since 1997 when it opened at $1.73 a share. During the years running up to the dot com bubble, Amazon.com was one of the few internet stocks that actually was making any money and was not based on hype and fluff. It peaked at $78 before the dot com bubble but fell to the $10 range after the crash. The stock gradually rose in value until it got to the $120 range before it began an almost exponential growth, arriving at $1952 a share in September of 2018. At that point it lost about a third of its value before recovering and then lost about a fourth before climbing to over $2,100 a share today.

The stock does not pay a dividend and has a P/E ratio of 92! All of its attraction lies in its growth prospects. Amazon.com today is the largest provider of AI assistance, cloud computing services, and online marketplace. The company has driven a huge swath of brick and mortar retailors out of business or into much smaller versions of their former selves. They have gone into movie production and online content streaming as well where they compete with Netflix and Disney. It is unlikely that the company will ever go away as it efficiently provides a whole range of valuable services and routinely out-competes all others. But, its growth curve is reminiscent of Microsoft before it corrected and flat-lined for years after the dot com crash. Thus the investment risk for Amazon.com is getting in today at $2,100 a share and seeing it fall to $1,500 only to stay there for a decade!

Jeff Bezos Has Other Investments than Amazon.com

Is it time to sell Amazon just because the largest shareholder decides to take less than 3% of his holdings? Bezos announced three years ago that he would be funding his space flight company, Blue Origin, to the tune of $1 billion a year and he may be planning another expected purchase like when he bought The Washington Post a few years ago. All of that having been said, Bezos has timed his sale at a high point for Amazon.com stock.

How Bad Is the Amazon.com Bubble?

CCN thinks that Amazon stock is in serious trouble. Their argument is that, unlike the other high-flying tech giants that have been driving the market higher, this stock has a hugely-inflated PE ratio and is due for a correction. The situation is similar to that with Tesla which recently benefited from a short squeeze as short sellers were forced to exit their positions and drive prices higher.

There are investors who firmly believe that Amazon is and will remain the wave of the future. But, the question in regard to intrinsic stock value of Amazon.com is just how many new businesses Bezos can grow under one umbrella and how long can he maintain thin profit margins before something breaks?

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.

Best Buy
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.