‘Amazon-proof’ your portfolio with these eight stocks

It sometimes seems that no company is safe from the online juggernaut. Laura Suter identifies some that should thrive

Amazon has grown from its origins as a bookseller to dominate the online retail space, challenging many businesses in the process. During 2016, $128bn (£93bn) was spent on the Amazon website, and sales have grown by an average of 20pc a year. Amazon is one of a number of industry “disrupters” that have challenged traditional bricksand-mortar businesses.

James Thomson, fund manager at asset manager Rathbones, said: “Amazon is the bogeyman for many companies today. It has spread rapidly into wider ecommerce, cloud services, television programming.

“Thousands of chief executives wake up each morning in a cold sweat, panicked from a recurring nightmare that disrupter-in-chief Jeff Bezos has taken aim at their industry.”

But how can you invest in companies that are “Amazon-proof ”, or at least more immune from the effects of the retail giant?

Rory Powe, of investment company Man GLG, said Amazon will be particularly damaging for those companies with “me-too” products and services.

For this reason he prefers to invest in companies that predominantly sell to other businesses, or those that have a strong brand and control the entire production line of the product.

Jewellery brand is one company that fits the latter description. Mr Powe has 4.7pc of his Man GLG Continental European Growth fund in the Danish designer and jewellery manufacturer. The designer generated £2.7bn of revenue last year, despite 2017 being a “challenging year”.

Another example Mr Powe gives is luxury goods company which sells high-end ski clothing and outerwear. The company has gross margins of more than 70pc and Mr Powe said “the balance sheet is healthy”.

Pandora Montcler,

He said that exclusivity of the brand, in addition to the company being very strict about the locations it operates in, make it “Amazon-proof ”.

Other retailers can stand up to Amazon’s reach – by providing a personalised service, said Mr Thomson.

He picked out American hardware shop The shop is the US version of B&Q or Homebase.

“It doesn’t just offer products; its staff can give advice and dispense know-how on home improvement projects to newbies who stumble through its doors.

“Home Depot can also offer credit-lines, flexible delivery schedules and customisation for the professional tradesmen. These services are very difficult to replicate online,” said Mr Thomson.

Home Depot.

In much the same way as Amazon, Home Depot also uses its scale to push down prices with suppliers and ensure it is not undercut by competitors.

Mr Powe is not alone in preferring to invest in companies that sell to other businesses, rather than direct to consumers.

Craig Bonthron, a fund manager at asset manager Kames Capital, said his best examples of Amazon-proof companies are those selling technology to other businesses – often in niche areas.

Everbridge,

an $890m cloud-based software provider, sells subscriptions to its emergency communications service – used by many companies to contact and locate employees in times of crisis.

Its “fantastic” relationships with its customers insulated it from Amazon, explained Mr Bonthron.

It has a “first-mover” advantage and has now gained contracts with large organisations, such as the Metropolitan Police and New York city’s emergency services.

However, this has not gone unnoticed and the share price has risen from $15 at its July 2016 stock market listing, to more than $31 today. Mr Bonthron, who has about 2.5pc of his fund in the company and bought them at around $20 a share, is waiting for any fall in the price

Medidata

before he buys more. is another company that fits the bill for Mr Bonthron. The $3.9bn database software company helps pharmaceutical and biotech companies running clinical trials.

“It is replacing very generic systems, and has targeted a real specialism. It’s become the platform of choice and industry standard for pharma and biotech,” he said.

The company’s share price has fallen recently due to fears about a competitor, but Mr Bonthron batted away concerns, saying it is “beyond the point where someone else can take meaningful market share” and is seeing it as an opportunity to buy more of the stock.

Understanding the sources of Amazon’s success helps to identify businesses insulated from it, said Alison Porter, a fund manager on the technology team at Janus Henderson Investors.

“Amazon was built on being customer first, and focusing on the customer experience at the expense of profit margins. Jeff Bezos’ mantra is that ‘your margin is my opportunity’,” she said.

One area where Amazon has not had success is the online travel market – itself a disrupter to the traditional, physical travel agents that used to dot high streets around the country.

“Amazon has tried to get into being an online travel agent, and then pulled back. and

we think are relatively Amazon-resilient,” she said.

She pits their resilience on the fact that the online travel market requires a lot of manpower, to both sign up hotels and to service customers.

Another area that seems well protected from Amazon’s reaches is the Chinese ecommerce market, said Ms Porter.

Again, she said Amazon had tried to get further reach into the Chinese ecommerce market, but the domination and scale of had made it difficult. Alibaba – often dubbed the “Chinese Amazon” – is a $467bn company, putting it slightly behind Amazon’s $629bn market capitalisation.

“Amazon has tried to break into ecommerce in China and then pulled back, due to the dominance of Alibaba and scale the company has achieved.

“Margins are not already high and customer satisfaction is high. The scale that Alibaba has provides it an advantage on logistics and reach. It is expensive to be able to overcome that,” said Ms Porter.

Priceline Expedia Alibaba

‘Chief executives’ nightmare is that Jeff Bezos has taken aim at their industry’