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How stock investors are cashing in on the red-hot ‘sharing economy’ trend

Investing in the sharing economy

As the "sharing economy" has expanded and morphed into a seeming catch-all term for companies that connect strangers through technology, equity investors may be able to cash in on the technology-driven trend.

That's according to an exhaustive recent report from Bank of America Merrill Lynch. The report concludes the sharing economy's influence has blown up so tremendously in recent years, touching essentially every aspect of consumers' lives, that it's created a host of new business models.

A potential hurdle for many investors is that many of the firms across the sharing economy are privately owned, as BofAML strategists explored in the report, "Uberfication — Global Sharing Economy Primer." Yet for those who cannot invest in Uber, Lyft, Airbnb and TaskRabbit, the strategists offered ideas for gaining exposure to the sharing economy through a list of over 50 selected publicly traded stocks such as Netflix, Box, PayPal, Alibaba, Expedia and Amazon. These were deemed "entry points" for investors who might be bullish on future prospects of the sharing economy.

"Although it is difficult to accurately gauge the link between such exposure and share price performance (as many factors outside the scope of this analysis are likely to play a role in short- and long-term price development), we still consider Sharing Economy exposure as an important and positive point to track," wrote the team, led by thematic equity strategist Felix Tran. He added that the sharing economy is a global theme with a "long lifespan."

A public company on its list with "high" exposure to the economy boasts sharing-economy-related "technologies, services, and solutions" crucial to its business model, strategy and research and development. Among large U.S.-listed companies, the only two with "high" exposure were Netflix and Box.

Among some of the large-cap stocks in the compiled list, Amazon is one of the most attractive, said Erin Gibbs, portfolio manager at S&P Global. Gibbs does not own Amazon personally, though she does advise clients' portfolios which have positions in the company, she said.

According to the BofAML team, Amazon has "low exposure" to the sharing economy in the cloud space and "medium exposure" in the platform space.

"If you are going to buy stocks priced in the triple digit valuations, you should be compensated with consistent accelerating earnings growth and strong management," Gibbs told CNBC in an email on Tuesday. Amazon delivers this, she wrote, recalling the success of the company's third annual "Prime Day," along with its recent Whole Foods acquisition, as examples of solid execution.

"Unfortunately, most of the sharing economy stocks are also very expensive from a valuation perspective, and only a few offer compelling profit growth to justify the price. I would recommend buying selectively within BofAML's sharing universe," Gibbs wrote.

The BofAML report acknowledges the sharing-economy concept is not a recent innovation, but argues that the technologies powering its various platforms have certainly evolved and strengthened. The report quotes NYU Stern School professor Arun Sundararajan: "Sharing isn't new. What is new in the 'Sharing Economy,' is that you are providing these services to a stranger for money rather than helping a friend for free."

Consumer interest and corporation interest in the space has risen, per measurements by Google Trends and judging by the number of mentions in company presentations and earnings transcripts between 2013 and June of 2017, of which there have been over 200. And though millennials and the younger centennials (also known as Generation Z) are "undisputedly" the largest cohorts in the sharing economy, all demographics are increasingly getting into sharing companies.

Furthermore, as bulls have piled into stocks such as Alphabet, Netflix and Amazon, venture capitalists have piled into some of the biggest "sharing" names. In fact, funding for some of the giant players in the space has been incredibly concentrated, with several large venture capitalist firms leading the way. According to Crunchbase figures referenced in the report, 75 percent of funding has been allocated to five companies alone: Uber, Airbnb, Lyft, Indian ride-sharing company Ola and Instacart.