I promised you the surest, most direct path to profits I could find when I started Total Wealth.
Today I’m going to keep that promise with a look at one company making “must-have” products that are so important to Amazon.com Inc. (Nasdaq: AMZN) that Team Bezos could not have risen from $290 a share three years ago to around $1,300 today.
At the same time, we’re going to use today’s column to continue a conversation we started last week about why some companies, like the one we’re going to talk about in a few moments, mean bigger profits, faster wealth creation, and less risk.
Most investors will never catch on, of course.
They’re so focused on finding the next gazillion-dollar widget or high-flying tech darling that they risk completely missing the biggest profits in today’s markets (again)!
How is this possible?
Wall Street wants you be impatient, naïve, and completely aware. They spend billions encouraging investors to speculate by selling a get-rich-quick mentality when, in fact, it’s often the most mundane of things that result in ginormous profits.
Things like… cardboard boxes.
Most investors have never given ’em a second thought, but they should.
Cardboard boxes are the one “commonality” tapped into the greatest retail explosion in recorded history: online shopping. According to BigCommerce.com, 96% of all Americans with Internet access have purchased an item online at least once in their lives. That’s a staggering 310 million people.
Approximately 80% of Americans cite making a purchase in the last month… 30% in the last week, and 5% in the past day… That’s over 16 million people having at least one package being delivered every 24 hours in America alone.
Every one of which has to come in – you guessed it – a cardboard box.
Online shopping has increased a staggering 430% from 2000 to 2015 and will be worth an eye-popping $683 billion in sales by 2022, according to Statista.
Studies from Freedonia show that e-commerce suppliers like Amazon, or other third-party sellers, are purchasing an average of two-thirds of all boxes manufactured today. Amazon Prime, which added 25 million members from September 2016 to September 2017, has contributed significantly to this because of the need for expedited shipping for everything from toilet paper to tissues.
Not too long ago, in 2000, the average cardboard box maker produced something on the order of 3.1 billion square feet worth of boxes. Today that figure stands at 4.2 billion square feet, or more than enough to cover the entire city of Detroit.
I get asked a lot why retailers don’t adapt.
Traditional brick-and-mortar retailers aren’t giving you a shirt or pants in a box… you go to the store, pick something out, try it on, and walk out with it in a bag most of the time.
Box makers didn’t have to innovate because boxes were traditionally used only to stock retailers. Traditional retail channels may have, at most, five “touch points” – meaning they’re physically handled five times before they’re set down for the rest of their “box life” in their proper places.
Now, online sellers need more than four times that many touches – so more hands are touching the packages, they’re moving to more places, and have to be on different types of cargo transportation. There’s more room for error on the part of the box handlers.
Plus, damaged boxes don’t matter much for traditional retailers. You wouldn’t need to see a box that’s been dropped 100 times at your local clothing store. You would need to see it if the box were being delivered directly to your doorstep.
E-commerce producers need to spend time thinking about the types of boxes and packaging they’ll be using for their products. It’s a simple equation – if a consumer, like you, receives a product from Amazon in a box that’s damaged because of the shipping, and your product is also damaged, you’ll probably think twice about buying something from Amazon again!
A damaged product equals a damaged reputation.
Amazon knows this.
Boxes need to be top-notch to be shipped across the world, so Amazon’s objectives line up with exactly what box producers are trying – maximizing innovation and use.
That’s your entry and where Packaging Corp. of America (NYSE: PKG) comes into play.
I’ve been tracking PKG for a while now in our premium sister service, Money Map Report. Investors following along, as directed, are enjoying returns now approaching 63%.
Now, I’m sharing it with you.
The company’s leveled off a bit in recent trading, which is always great, because that’s frequently a sign of higher prices to come as traders gather the breathing room they need to make another run.
In case you’re not familiar with the company, PKG is a box manufacturer, smaller in size, and based out of Lake Forest, Ill. The company employs around 14,000, and its market cap is a notch over $12 billion, which means it’s a solid mid cap.
The company’s corrugated products line has grown 68% from 1997 to 2016, compared to a 5% decline from its industry peers. Factor in volume from an acquisition of Boise, and that volume has grown 107%.
The company has beat (or met) earnings expectations for the last four consecutive quarters by an average of 3.42%.
And from 2013 to 2016, revenue increased 57.68%, from $3.66 billion, to $5.78 billion.
One of its key competitors, by comparison, International Paper Co. (NYSE: IP) – which measures over twice the size of PKG – has seen revenue decrease by close to 10.23% over that same time frame.
No doubt you see my point today.
Cardboard boxes have never been so exciting.
*This has been a guest post by Money Morning*