No stranger to controversy, President Trump went after Amazon.com Inc. (Nasdaq: AMZN) with a vengeance – saying that the company pays no taxes, abuses the Postal Service, and puts retailers out of business. Amazon stock, of course, immediately got a 4.4% buzzcut that trimmed $31.77 billion off its market cap.

Unfortunately, the president is off base, and unless you take steps right now, your portfolio will get hammered as the battle escalates.

Don’t get me wrong – I get where Trump’s coming from, personally.

The notion that Amazon is somehow capitalizing on the system is a popular one. The war on success, begun decades ago and brought to the forefront for millions of hard-working people during the Global Financial Crisis, remains in full swing.

The unfortunate byproduct, of course, is that huge swaths of society are not even remotely interested in fighting back to defend the founding principles of free enterprise, productivity, and personal initiative that define our national character.

What he’s saying is just not factually correct.

First, Amazon sheltered more than two-thirds of its profits for the five-year period that ended in 2017 while paying federal taxes at an effective rate of 11.4%… using various tax credits and tax breaks. At the same time, the president’s own tax cuts give Team Bezos a $789 million one-time tax shelter. What Amazon is doing is no different than what every other company is doing; the company is just an easy target.

If the president doesn’t like that, it’s Congress he should be pushing to change the system rather than punishing Amazon for being ultra-efficient at fully exploiting legal loopholes that otherwise should not exist in the first place.

Second, Amazon collects taxes in all states where sales taxes exist – plus D.C. – on 100% of its own sales, but not those of other sellers using Amazon’s platform. This, too, is a “fix the system” problem rather than a “target Amazon” issue. Incidentally, Amazon supports federal legislation requiring online retailers to pay state taxes on online sales.

Adding fuel to the fire, Amazon is killing retailers the way big box stores like Walmart Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), and other players killed mom-and-pop stores. And, in the process, an entirely new class of local merchants is emerging with products and services that Amazon can’t replicate in local communities – like bakeries, small booksellers, local pubs and the like, where people matter more than products.

And, third, the U.S. Postal Service is so inefficient that it’s a running national joke. Package revenue actually grew by $2.1 billion last year (thanks in good measure to Amazon-related shipping) and tacked on 11.8%. The losses are from a decline in first-class mail revenue in an age of email. There’s also the billions in legacy pension costs and ultra-high labor costs that, again, are not an Amazon-related issue. That’s the real bleed to taxpayers and, I suspect, to the President.

How to Play the Situation for Maximum Profit Potential

So, now what?

I think there’s a great trade here… perhaps even two or three.
Amazon is getting into the transportation business and nothing the president does or says will stop that.

The company has already purchased thousands of its own truck trailers and is getting into the ocean freight business in order to move goods around the world, but particularly between the United States and China.

I’m most interested in aircraft, though.

Amazon reportedly has plans for a number of air cargo hubs like the $1.5 billion facility that will be capable of handling 200 cargo flights per day it’s building in Kentucky. Ultimately, there are enough parking slots to hold 40 Amazon Prime Air planes (likely Boeing 767s, in case you’re wondering) – 16 of which were already in service as of January 2017 just over a year ago when the initial plans were announced.

Amazon wouldn’t be doing this if a) it didn’t need additional capacity to pick up where FedEx Corp. (NYSE: FDX) and United Parcel Service Inc. (NYSE: UPS) leave off, and; b) if there were not additional aircraft orders pending.

The best and most direct way to play this is to put your money alongside Amazon’s.

Let me explain.

Big companies very rarely buy aircraft outright for the cargo business but, prefer instead, to lease them. That way they can use their capital more efficiently in ways that don’t negatively impact their balance sheet.

It’s a classic “pick and shovel” strategy similar to that which we’ve used successfully over the years to capitalize on recommendations with oil pipelines, like Andeavor (NYSE: ANDV), while avoiding the volatility of oil prices themselves and, more recently, with chip makers, like NVIDIA Corp. (Nasdaq: NVDA) to play AI and blockchain technology, while avoiding the volatility associated with robotics and cryptocurrencies.

Amazon struck two strategic partnership deals with Atlas Air Worldwide Holdings Inc. (Nasdaq: AAWW) and Air Transport Services Group Inc. (Nasdaq: ATSG). In both cases, the company received warrants as part of the transaction.

Amazon, according to public information, could buy 30% of Atlas Air Worldwide by 2022 at a price of $37.50 and 20% of Air Transport Services Group by 2021 at $9.73 per share. Right now, the former is trading at $60.90, while the latter is trading at $23.47.

This is particularly important because Amazon has a well-documented track record of buying companies it perceives as leaders in their space… after initially bringing them inside the proverbial wall with deals like the two I’ve just touched on.

Evi Technologies, for example, built “Evi” in 2012 – and in 2013 that same intellectual assistant software would get purchased for $26 million. Today, you know Evi as “Alexa.”

Amazon purchased TextPayMe in 2007 and, after an abortive effort known as WebPay failed in 2014, Amazon Payments is a viable competitor to PayPal.

No doubt you see the pattern here – Amazon doesn’t invest in anything it can’t use.

I believe Amazon’s need for cargo aircraft will grow faster than many people think. Forty aircraft are just the tip of the iceberg, which means the leasing companies providing ’em will make out like proverbial bandits as Amazon expands.

This type of growth is, unfortunately, still way, way under the radar for most investors, so they’re going to miss out. And, once again, that gives savvy investors a great entry point.

Ready for takeoff?

I am!

— Keith Fitz-Gerald

Source: Money Morning