4 Best E-Commerce Investments Now

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 |  Includes: AAPL, AMZN, LNKD, PCLN
by: Peter F. Way, CFA

One great strength of the American economy has regularly been the consumer's readiness to spend on improving his/her standard of living. (Another great strength has been the inventiveness and productive efficiency of its businesses that make possible the income for consumers to spend, but that is not the subject of this article.)

A key element in the consumer's condition has been the persuasiveness of the marketing industry in keeping those desires at a near-fever pitch. The advent of television in the mid-20th century provided an educational tool quickly turned to the task with great success, at least in the direction of mass consumption.

But now the advent of the internet, information technology, and "mobile communication and computing" has taken the process to a new intensity. The evolving field of "e-Commerce" is revolutionizing retailing, and its innovative dimensions are creating dramatic profit and investment opportunities, along with chaotic destruction among the established.

The process is not just "new" vs. "old." The quick to react and adjust of the established are demonstrating their competitive capabilities. The field of retailing is so huge that the early adapters among the entrenched will both defend their positions and expand into new opportunities, while eroding their existing competitors. Innovators are demonstrating where unexpected new potentials are blossoming.

Investors have a big job in keeping up with developments. Not only are there evolutions in communications and the related hardware, but in information technology (its acquisition, organization, and employment), and in customer exposure and education.

For investors to try to keep up with all the "progress" in the field requires a research and monitoring staff few can afford. Our answer to that quandary is our usual: Let the best watchers and information-collectors do their thing, and piggy-back on their well-informed, reasoned judgments.

Typically in the investment game, those folk are the now so-called "investment banks" that "make markets" for the big-money mutual-fund, hedge-fund, and endowments that have the capacity to significantly move equity prices. Unless wary, the market-makers will be sandbagged by their clients, who feel a responsibility to the sources of their capital, to make that capital grow as fast and reliably as possible, by any legal means. Somehow, the market-makers have come to feel the same way, so an intense competition persists in being the best-informed and most insightful anticipator of future price moves.

The usual at-risk period of capital involvement for the market-makers is far shorter in time (and perhaps smaller in scope) than for the investors, so they can and do employ more intensive risk-protection schemes. In the process they unavoidably leave footprints of their actions. Being extremely rational in their operations, the extent of their concerns is thus revealed, when one knows how. As we do, and have, for years.

So, coming back to the e-Commerce investment scene, where there is intense activity by current-day investors, we have put together a collection of involved investment candidates. Hopefully it contains the most apparent suspects. Our apologies for any obvious omissions. If we are so advised, they can be added next time.

A current picture of the market-makers' communal consensus of near-term upside and downside price change prospects for these candidates follows:

Click to enlarge

While the exact time scope of these forecasts is not definable, actions based upon them have been demonstrated to be effective in periods of 3 to 4 months and longer, so they are not merely of an extremely short nature.

Here are important considerations differentiating their expectations:

e-Commerce Stocks

Price Change

Odds of Next

Data

Forecast Now

3 Months' days

Symbol

Name

Quality

% Up

% Down

Higher

Lower

LNKD

Linkedin Corp.

Fair

11

-7

69

31

V

Visa Inc.

Excel.

8

-3

74

26

AAPL

Apple Inc.

Excel.

15

-2

75

25

PCLN

Priceline.com

Excel.

11

-4

70

30

AMZN

Amazon.com

Excel.

11

-4

75

25

SBUX

Starbucks Corp.

Good

5

-7

74

26

NFLX

Netflix Inc.

Good

18

-10

60

40

T

AT&T Corp.

Excel.

5

-3

57

43

TGT

Target Corp.

Excel.

5

-4

47

53

EBAY

Ebay Inc.

Excel.

6

-11

18

82

YHOO

Yahoo Inc.

Excel.

9

-7

42

58

GOOG

Google Inc.

Excel.

11

-2

47

53

VZ

Verizon Comm.

Excel.

4

-3

54

46

LULU

Lululemon Ath.

Fair

10

-10

68

32

WAG

Walgreen Co.

Excel.

7

-4

52

48

GMC

Green Mtn Coffee

Good

18

-12

54

46

MA

Mastercard Inc.

Excel.

9

-2

35

65

GRPN

Groupon Inc.

Fair

31

-15

16

84

FB

Facebook Inc.

Poor

16

-9

39

61

YELP

Yelp Inc

Poor

28

-7

59

41

ZNGA

Zynga Inc.

Poor

29

-19

32

68

Click to enlarge

These stocks have been separated by their quality (extent) of supporting data into two camps, the upper one of adequate information, and those three labeled "Poor", as being of insufficient data to reach any justifiable judgments.

The upside and downside "Price Change Forecasts Now" are those pictured in the Risk~Reward Tradeoff plot diagram.

Their odds of encountering higher or lower prices over the next 3 months are drawn from actual prior experiences following all forecasts with at least as favorable upside to downside ratios as at present.

It is important to recognize that these odds can be significantly different, when following forecasts of differing upside and downside prospects.

Now let's see how well these forecasts and their historic odds have done in the past for investors. We can measure by using a simple standardized, but logical strategy.

e-Commerce Stocks

Time-Efficient Strategy

Data

Simple %

Days

Annual

Symbol

Name

Quality

Performance

Held

Rate

LNKD

Linkedin Corp.

Fair

8.7%

26

124%

V

Visa Inc.

Excel.

8.6%

28

108%

AAPL

Apple Inc.

Excel.

7.2%

26

95%

PCLN

Priceline.com

Excel.

7.9%

34

75%

AMZN

Amazon.com

Excel.

6.4%

29

71%

SBUX

Starbucks Corp.

Good

4.0%

27

43%

NFLX

Netflix Inc.

Good

2.2%

26

23%

T

AT&T Corp.

Excel.

1.6%

34

13%

TGT

Target Corp.

Excel.

1.4%

32

12%

EBAY

Ebay Inc.

Excel.

1.2%

30

11%

YHOO

Yahoo Inc.

Excel.

1.5%

36

11%

GOOG

Google Inc.

Excel.

0.5%

36

4%

VZ

Verizon Comm.

Excel.

0.0%

35

1%

LULU

Lululemon Ath.

Fair

-0.6%

29

-5%

WAG

Walgreen Co.

Excel.

-0.8%

35

-5%

GMC

Green Mtn Coffee

Good

-1.2%

26

-10%

MA

Mastercard Inc.

Excel.

-4.8%

39

-27%

GRPN

Groupon Inc.

Fair

-16.9%

35

-73%

FB

Facebook Inc.

Poor

-19.9%

36

-78%

YELP

Yelp Inc

Poor

23.7%

23

899%

ZNGA

Zynga Inc.

Poor

-34.8%

43

-92%

Click to enlarge

The "Time-efficient Strategy" referred to in the three right-hand columns is straight-forward: Buys made at only, but every, instance of prior forecasts with at least as favorable upside to downside ratios as at present, were made at the close of the following market day. They were closed out at the first following end of day that equaled or exceeded the price at the top of the forecast range on the day of forecast. If that sell target was not achieved by two months (42 market days) following the forecast date, the buys were closed out at that end-of-day price.

The "Simple % Performance" results were cumulated as a 1+gain% product of all experiences. Those were then reduced to per day changes at the nth root of their average of (market) "Days Held" and annualized on a 252-market-day year to reach the "Annual Rates" shown..

Annual rates are important to consider, since they measure the potential return compounded from the re-use of capital during periods of otherwise unproductive, and even damaging, time that goes wasted in the conventional buy-and-hold strategy.

These results are for individual stocks, not as part of any portfolio, and contemplate all available experiences from present forecast levels over the past five years.

They are offered as indications of investment productivity from the application of past market-maker forecasts. As such they suggest the extent of that professional investment community's understanding of the likely future of the specific stocks, given present expectation levels.

It should be noted that for each stock the result of the strategy outlined will likely differ at other levels of upside-to-downside forecast imbalance. Key to those imbalance differences is typically a change in the current market price quoted.

Regarding the specifics of the table above, which has been ranked by the Annual Rate column on the right, the best performing stocks (from present forecast levels) have been ones where the odds of higher prices typically have been about 70-30 or better.

Not likely a coincidence, it should be taken as a clear sign that at present forecast levels the professional market-making community has understood well the intentions of their big-fund clients toward these stocks. They probably are continuing to do so.

Stocks like Target (NYSE:TGT), Walgreen (WAG), and Lululemon Athletica (NASDAQ:LULU) are retailing names that increasingly appear among discussions of these new competitive trends.

We are not retailing industry analysts. But we have information that can be usefully applied by others who also are not specialists. From time to time we will share it to help level the playing field while there are continuing concerns of market fairness.

Clearly, there appears to be higher-future-price justification for enthusiasm over ownership, new or present, in the stocks of Linkedin (NYSE:LNKD), Apple (NASDAQ:AAPL), Priceline (NASDAQ:PCLN), and Amazon (NASDAQ:AMZN).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.