If you like Amazon, you'll love these 3 stocks

There are a few ways to invest in a hot stock like Amazon and the budding e-commerce industry.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) is one of those stocks investors love to own, and for good reason. Not only has it delivered incredible results since its initial public offering (growing over 131,100%), but there's also loads of growth ahead for the company as online shopping expands.

There's a lot going for the stock over the long term, but its size and popularity mean the company is trading at a premium, around 116 times its price-to-earnings (P/E) ratio Thankfully, investing directly in Amazon isn't the only way to benefit from the company's incredible e-commerce growth and market share. 

Here are the stocks three Motley Fool contributors believe are great alternatives to Amazon: Digital Realty Trust (NYSE: DLR), Zillow Group (NASDAQ: ZG)(NASDAQ: Z), and Prologis (NYSE: PLD).

Exposure to data centers without the retail risk

Kristi Waterworth (Digital Realty Trust): Investing in Amazon means investing in various business models that converge under a single ticker. But not every Amazon investor is there for the retail, streaming, logistics, and data-storage combo model. Some are simply looking for more ways to expose themselves to the growing world of data centers.

If you’re one of these investors, the good news is that data-center real estate investment trust (REIT) are a great way to get more direct exposure to data center growth without all the risk of retail tagging along for the ride.

Digital Realty Trust is a strong data center REIT with a proven track record and direct ties to Amazon. It leases a portion of its space to Amazon Web Services (AWS), Amazon’s data arm (and it services AWS by providing expanded capacity and connectivity to its customers).

Amazon also owns and develops its own data centers, somewhat in competition with Digital Realty Trust, but the latter still has an upper hand because it only deals in data centers, giving it a larger and more diversified tenant base across a range of industries, including other e-commerce companies.

And unlike Amazon, Digital Realty Trust pays quarterly dividends, estimated at $4.88 per share annually for 2022. This is up 5.17% over 2021, and its dividend payouts have only continued to climb since 2005, when they were a mere $1 per share annually.

Free cash flow has been more or less steady in 2021 and 2020, at about $1.7 billion, but this is part of an upward trend that has been slowly building since 2012, when free cash flow was at a comparatively small $542 million. In that time, Digital Realty Trust has been working to expand operations across the globe, and now has over 300 data centers in more than 25 countries on six continents. This includes newly acquired data centers in emerging markets like South Africa and Israel.

Digital Realty Trust is one the REITs I am most bullish about, not only because it has a grasp on the future and where and how it needs to grow to remain competitive, but also because we live in an increasingly data-centric world where opportunities will only increase for data centers in the near term.

Unlike AWS, Digital Realty Trust remains small enough to be fairly agile and to move quickly into emerging markets, while still being a massive presence in the data center world.

Can Zillow become the Amazon of real estate buying?

Mike Price (Zillow): For the first several years of its business life, Amazon was a bookseller. It sold a few other things, too, but the business was a lot more concentrated than it is today. Today, the e-commerce giant makes money from AWS, third-party sales, advertising, subscriptions, physical stores, and even books. And Zillow might be on the verge of its own transformation from a very concentrated revenue source into more-diversified business avenues.

Much of Zillow’s revenue comes from the buyer’s agent-referral commission. People go on the website to check out houses and click on a link for an agent in the area and use that agent. This is a very profitable revenue source and will likely continue to be the backbone of Zillow’s business for some time. But the company wants to diversify revenue streams.

Zillow is trying to get more involved in seller’s agent commissions, mortgage originations and servicing, closing services, and rental services. Each of these areas could add a multiple to the amount of revenue that the company makes from every sale that begins on its website.

The good news is that the website already has traffic. There were 234 million average monthly unique users in the second quarter of 2022 and 2.9 billion total visits to the website.

The key will be converting those users from view-only to paying customers. There is certainly a demand for a service like the one Zillow could provide.

Today, when looking for a house, you have to find an agent, get a list of available houses, travel to each of them for a tour, get pre-approved for a loan, make an offer, find an inspector, be approved for the loan, find a title insurance provider, and lastly travel to the closing location to sign what seem like hundreds of pages of documents.

Now imagine if you could use a tailored Zillow search to virtually tour the houses you were interested in, only visiting the ones that you would likely make an offer on. Then be pre-approved in minutes before the process even starts and be approved right on the app. Choose an inspector and title-insurance agent from a list of providers with customer reviews and ratings. And then close virtually on the same app to save all important documents right where you know they’ll be.

Part of the reason Amazon was able to grow as much as it has is the integration among its services. You can go to Amazon's website to buy anything you need, read books, watch shows, rent movies, and even publish your own books. If Zillow can become the same thing for real estate buyers, it has a lot of room to run.

Back-end access to e-commerce distribution and logistics

Liz Brumer-Smith (Prologis): As the largest e-commerce company in the world, Amazon needs a lot of industrial space to store and send its products quickly and efficiently. A huge part of Amazon's business is the management, logistics, and distribution of the products it sells.

That's where Prologis comes into the picture. It is the largest industrial operator in the world, and Amazon is its largest tenant. As of the second quarter, roughly 4.8% of Prologis' net effective rents came from Amazon thanks to the 33.6 million square feet of space it leases from the company.

Rumors were floating in late July about Amazon needing less logistics and industrial space based on its current supply, which has put some pressure on Prologis' share price as of late. But the REIT's latest earnings call and the company's industrial-operations updates have put investors' concerns to rest. Amazon made up 21% of Prologis' newly executed leases in the second quarter. Plus its retention rate for spaces currently leased by Amazon was 95%, 20 points higher than the portfolio average.

The really great thing with Prologis is that it isn't just an alternative way to invest in Amazon. The REIT offers exposure to the fast-growing e-commerce industry as a whole, having roughly 2.5% of the world's gross domestic product (GDP) -- or around $2.2 trillion -- moving through its industrial facilities.

It carries a very healthy balance sheet and has massive growth opportunities, including the acquisition of the industrial REIT Duke Realty, which also earns around $50 million from Amazon in rents each year. Plus Prologis pays a quarterly dividend with a yield sitting around 2.25% today. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kristi Waterworth has positions in Amazon and Digital Realty Trust. Liz Brumer-Smith has positions in Digital Realty Trust, Duke Realty, and Prologis. Mike Price has positions in Zillow Group (C shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Digital Realty Trust, Prologis, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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