Multi-asset trading expert Saxo Bank has launched an E-commerce theme basket, as e-commerce stocks are continuing their strong momentum this year.

Let’s note that these baskets are inspirational lists and not Saxo’s investment recommendations. Investors are advised to do their own due diligence of these stocks and make their own assessments of whether the theme and the individual stocks make sense in their respective portfolio.

Saxo has selected 40 stocks for the e-commerce theme with a global focus. The company has excluded travel and leisure stocks such as travel sites and travel recommendation sites, which are e-commerce in a sense but are in a separate travel and leisure theme coming later this year. The list represents almost $4 trillion in market value and the group of companies have an average revenue growth rate of 40% the past year with divergence within the group on y/y change in EBITDA.

The two biggest companies in the global e-commerce industry, and at the top of Saxo’s e-commerce theme, are Amazon and Alibaba. While growth rates have been strong for e-commerce in 2020 and will come down in 2021 the outlook remains strong.

On a bigger macro level, Saxo sees two trends. In the US and Europe, e-commerce will deliver its future growth from penetration of existing categories such as electronic and clothing, but the biggest growth will be in grocery, health, and cars. In emerging markets, Saxo expects e-commerce in electronics and clothing to be the key drivers as emerging market countries catch up with the developed world.

While e-commerce stocks have been rallying the past year generating unprecedented returns for investors this equity theme does not come without risks as well. An obvious key risk is the rising shipping rates that are currently at level three times above the normal and last mile delivery costs are also soaring due to extraordinary demand which the supply side was not prepared for. This could squeeze operating margins in the short term, Saxo warns.

The reconfiguration of the global supply chain due to rising US-China tensions could longer term push input costs and prices on goods higher which again could put margins under pressure. Many e-commerce companies have had a first mover advantage but with big profits come more competitions and Amazon is a good case on this phenomenon with Amazon experiencing much more tough competition in regions such as Asia and South America.

Equity valuations are high on e-commerce stocks with Saxo’s basket valued at 79 times 12-month forward earnings which is around four times the global equity market. Rising interest rates could severely compress equity valuations on high growth stocks – a key risk Saxo has flagged in several presentations and on its daily podcast.

Let’s recall that, in January 2021, Saxo introduced the Next Generation Medicine basket. It contains companies which are working on the next generation of medical diagnostics and treatment, such as analysis of DNA and RNA, immunology, and within cell and gene therapy.