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Feb. 7, 2019, 11:19 a.m. EST

These 2 stocks you’ve never heard of are better ways to profit from Amazon’s growth

Both Air Transport Services Group and Kornit Digital are expected to increase sales and earnings more quickly than Amazon in 2019

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By Philip van Doorn, MarketWatch


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The co-managers of the Buffalo Emerging Opportunities Fund named to suppliers to Amazon that are well-positioned to benefit from the continuing growth of Amazon Prime.

Many investors have shied away from Amazon.com’s stock for years because of very high valuations — and have missed out on tremendous long-term gains.

But there are other ways to profit from that success, including by investing in two companies that supply Amazon /zigman2/quotes/210331248/composite AMZN +0.03%   yet trade at much lower valuations and are expected to increase sales and earnings more rapidly than Amazon this year.

The two are Air Transport Services Group /zigman2/quotes/202631986/composite ATSG -0.59%  and Kornit Digital /zigman2/quotes/201434077/composite KRNT -0.24% , which are favorites of Craig Richard and Doug Cartwright, who co-manage the Buffalo Emerging Opportunities Fund /zigman2/quotes/207405466/realtime BUFOX +0.18% . The fund was recently upgraded to a four-star rating (out of five) by Morningstar, after ending 2018 with a three-star rating. The fund managers discussed the stocks in an interview on Feb. 5.

Before looking more closely at the fund and its strategies, here are some numbers for the three companies:

Company Forward P/E Est. sales increase - 2019 Est. sales increase - 2020 Est. EPS growth - 2019 Est. EPS growth - 2020
Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN 61.2 18% 18% 35% 43%
Air Transport Services Group /zigman2/quotes/202631986/composite ATSG 15.3 46% 11% 32% 12%
Kornit Digital /zigman2/quotes/201434077/composite KRNT   34.8 24% 26% 57% 59%
Source:FactSet

Amazon trades at a high multiple to the consensus earnings estimate for the next 12 months among analysts polled by FactSet. The other two companies trade at much lower multiples and are expected to grow more quickly than Amazon this year. Looking at 2020 estimates, Air Transport Services Group is expected to grow more slowly than Amazon, but Kornit Digital is expected continue posting the fastest sales and earnings growth among the three.

Both of the smaller companies rely heavily on Amazon, which holds warrants to purchase shares of both. Only seven analysts cover each of the two companies.

Air Transport Services Group

Air Transport Services Group /zigman2/quotes/202631986/composite ATSG -0.59%  purchases used Boeing 737, 757 and 767 airplanes, refurbishes them for freight transport and then leases them to other companies. The company, which has a stock-market value of about $1.4 billion, announced in December that it had expanded its relationship with Amazon /zigman2/quotes/210331248/composite AMZN +0.03% to lease and operate 10 additional 767s, while extending agreements for the 20 767s Amazon was already leasing.

Air Transport Services supplies crews for the planes and handles maintenance, insurance and the warehousing of the Amazon products it transports. Amazon pays for the fuel.

“As it moves away from FedEx /zigman2/quotes/203047719/composite FDX +0.47%  and the U.S. Postal Service, Amazon will look to outsource transportation through ATSG and its competitor Atlas Worldwide /zigman2/quotes/200338181/composite AAWW -2.12% , while not owning the planes because of the high capital outlay. Amazon is looking potentially to deliver packages for other parties as well,” Cartwright said.


Kornitzer Capital Management
Doug Cartwright and Craig Richard, portfolio managers with Kornitzer Capital Management.

He estimated that more than half of Air Transport Services Group’s revenue would come from Amazon once the new planes are deployed, and another 25% of revenue from DHL (a unit of Deutsche Post AG /zigman2/quotes/202951856/delayed XE:DPW +1.17% ). 

As part of the new agreement, Amazon was granted additional warrants that give it the right to purchase 39.9% of ATSG’s common shares, rather than 33.2% under the previous deal.

Since Dec. 20 (the day before the new Amazon deal was announced), ATSG’s shares have surged 33% through Feb. 5. This means the market value of Amazon’s warrants has risen as well, which “reduces Amazon’s overall cost of doing business with ATSG,” Cartwright said.

Amazon has a similar deal (including warrants) in place with Atlas Worldwide. However, Cartwright said he and Richard steered clear of Atlas because “the balance sheet is materially worse” than that of Air Transport Services Group. “ATSG’s debt is about 1.5 times Ebitda for 2019, while Atlas’s is just under 4,” he said.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,760.94
+0.61 +0.03%
Volume: 2.75M
Dec. 13, 2019 4:00p
P/E Ratio
77.96
Dividend Yield
N/A
Market Cap
$872.77 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/202631986/composite
US : U.S.: Nasdaq
$ 22.65
-0.14 -0.59%
Volume: 334,092
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.35 billion
Rev. per Employee
$232,988
loading...
/zigman2/quotes/201434077/composite
US : U.S.: Nasdaq
$ 32.60
-0.08 -0.24%
Volume: 96,957
Dec. 13, 2019 4:00p
P/E Ratio
131.35
Dividend Yield
N/A
Market Cap
$1.32 billion
Rev. per Employee
$345,566
loading...
/zigman2/quotes/207405466/realtime
US : U.S.: Nasdaq
$ 17.13
+0.03 +0.18%
Volume: 0.00
Dec. 13, 2019
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,760.94
+0.61 +0.03%
Volume: 2.75M
Dec. 13, 2019 4:00p
P/E Ratio
77.96
Dividend Yield
N/A
Market Cap
$872.77 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/202631986/composite
US : U.S.: Nasdaq
$ 22.65
-0.14 -0.59%
Volume: 334,092
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.35 billion
Rev. per Employee
$232,988
loading...
/zigman2/quotes/201434077/composite
US : U.S.: Nasdaq
$ 32.60
-0.08 -0.24%
Volume: 96,957
Dec. 13, 2019 4:00p
P/E Ratio
131.35
Dividend Yield
N/A
Market Cap
$1.32 billion
Rev. per Employee
$345,566
loading...
/zigman2/quotes/202631986/composite
US : U.S.: Nasdaq
$ 22.65
-0.14 -0.59%
Volume: 334,092
Dec. 13, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.35 billion
Rev. per Employee
$232,988
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,760.94
+0.61 +0.03%
Volume: 2.75M
Dec. 13, 2019 4:00p
P/E Ratio
77.96
Dividend Yield
N/A
Market Cap
$872.77 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/203047719/composite
US : U.S.: NYSE
$ 165.67
+0.78 +0.47%
Volume: 2.90M
Dec. 13, 2019 6:30p
P/E Ratio
10.91
Dividend Yield
1.57%
Market Cap
$43.02 billion
Rev. per Employee
$304,846
loading...
/zigman2/quotes/200338181/composite
US : U.S.: Nasdaq
$ 27.65
-0.60 -2.12%
Volume: 269,351
Dec. 13, 2019 4:00p
P/E Ratio
4.67
Dividend Yield
N/A
Market Cap
$730.86 million
Rev. per Employee
$817,626
loading...
/zigman2/quotes/202951856/delayed
XE : Germany: Xetra
34.62
+0.40 +1.17%
Volume: 3.95M
Dec. 13, 2019 6:30p
P/E Ratio
16.83
Dividend Yield
3.32%
Market Cap
€42.28 billion
Rev. per Employee
€118,469
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