The Great White Shark in This Real-Money Portfolio
This article is part of our Real-Money Stock Picks series.
I consider the real-money portfolio I'm managing for Fool.com "prosocial" for a reason. I've designed it for investing in a socially responsible way. However, one of the stocks I purchased for the portfolio is beginning to remind me of Jaws, the monstrously huge and hungry great white shark that pretty much ruined Fourth of July at the beach -- and for some moviegoers, ruined the idea of the beach for a long, long time.
Amazon.com's (NAS: AMZN) rivals are going to need a bigger boat. There may be something a little bit antisocial about that, but being socially responsible shouldn't require ignoring the fact that the world is changing, and Amazon's history has shown it's always ahead of that curve.
Ruining a lot of rivals' days
Amazon's announcement about its new line of Kindle and Kindle Fire products last week made it look as if it could really put the competitive hurt on Apple (NAS: AAPL) and its tablet line, as powerful as the latter may be.
Granted, Apple's in a good position both competitively and financially to fend off Amazon's attacks. Apple has $27.65 billion in cash on its balance sheet, no debt, and a universe of popular products with cult-like followings. The buzz about iPhone 5 pre-orders certainly lends a sense of security against rivals like Amazon, for now, anyway.
But what about far weaker competitors such as Best Buy (NYS: BBY) ? The electronics retailer's many missteps and inability to bring differentiation to an experience that can just as easily be carried out online (through Amazon) has made it a retail stock to avoid.
Amazon's circling struggling Netflix (NAS: NFLX) , too. Netflix has been losing its edge with content providers in the streaming video space, leaving it less and less relevant to subscribers as DVDs go the way of the dodo. The massive costs associated with providing the best streaming content are a huge risk to Netflix's future.
The fact that Amazon's streaming video content through its Prime membership straight to users' devices isn't the only bad news. Amazon has been obtaining higher-quality, more timely video content to offer its customers instantly. Its recent licensing deal with cable channel Epix is a prime example. Netflix previously had an exclusive arrangement with Epix. This seems to indicate ugly things to come for Netflix.
My Foolish colleague Nathan Alderman recently described Amazon as insane, given its tendency to sacrifice its own margins and near-term profitability to pretty much destroy its rivals. I kind of agree with him -- Amazon's insane, in a cold-blooded psychopath or a great white shark kind of way. It can't stop moving ... and it constantly hunts.
What doesn't kill you makes you stronger
On the other hand, Amazon has also always been ahead of the curve in blowing the marketplace wide open. Amazon's platform disrupted the previous limitations of physical retail space, where only hits and best-sellers were profitable enough to stock on shelves. People accept the so-called "Long Tail Effect" (see our 2006 interview with Long Tail proponent and Wired editor-in-chief Chris Anderson) as simply the way things are now, but that wasn't always the case. Anything indie, arty, or otherwise obscure had very little exposure or availability before companies like Amazon came along.
Years ago, many people wept for bookstores, not to mention the fatalistic sense that Americans increasingly weren't that interested in reading. Lo and behold, Amazon's Kindle launch actually proved something inspiring and downright cool: Americans liked to read a heck of a lot more than had been previously believed.
In fact, the publishing industry would have suffered along with everyone else in recessionary times if it weren't for e-books. Publishers Weekly said that from 2008 through 2010, the publishing industry grew by 3.1%. This was attributable to the 39% increase in e-book sales, obviously driven by Amazon, as well as tablets and e-readers from Apple, Barnes & Noble (NYS: BKS) , and others. In fact, much like the publishing industry overall, Barnes & Noble's Nook has been about the only positive thing it's had going for it, although its growth has recently decelerated.
Although folks like to denigrate Amazon's bloodthirsty impact on all those who are remotely interested in publishing, its recently announced Kindle Direct Publishing feature sounds pretty friendly to individual writers (and their bank accounts). Authors can skip trying to make inroads with major publishers altogether and distribute their books via Kindle, keeping 70% of the revenue.
And of course, I have to skip many of the other things Amazon is involved in, whether it's cloud computing or its ability to offer everything from blockbuster hits to lawn and garden products to clothes and jewelry to random, obscure pieces of merchandise only niche shoppers would be interested in purchasing. (I bought a yarn swift the other day through Amazon. Look it up.)
Focus on the future
In other words, some disruptive companies may sound like mega-destroyers, but they're pushing our society forward when it comes to innovation and even creative destruction. The best businesses keep innovating to keep their outlook robust and customers happy.
Companies like Best Buy and Netflix suffer if they become complacent, make serious missteps, and lose their way (and their customers).
So, is Amazon really such an antisocial stock? As much as I like to joke about the Jaws motif, I don't really believe it. My prosocial portfolio shows that forward-looking companies that drive us into the future instead of sitting around wallowing in the past are the best investments. Innovation does drive economic growth and opportunities, even if we don't see how right at this moment.
Let me know in the comments box below if you believe Amazon's antisocial or not, and also note that our analysts have crafted a premium report on Amazon's risks and opportunities, which includes regular updates. Click here for more information on the report.
The article The Great White Shark in This Real-Money Portfolio originally appeared on Fool.com.Alyce Lomax owns no shares of any of the companies mentioned in her personal portfolio. The Motley Fool owns shares of Apple, Best Buy, Amazon.com, and Netflix. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, and Netflix, creating a bull call spread position in Apple and a bear put ladder position in Netflix, and writing puts on Barnes & Noble. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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