3 Best Ecommerce Stocks to Buy Right Now

JThe pandemic has brought many changes, but the acceleration of e-commerce has been significant and should be sustainable.

Studies suggest that many people who started shopping online out of necessity during the height of COVID-19 are likely to continue to do so. According to eMarketer, e-commerce sales will surpass $5.5 trillion globally in 2022 and will account for 21% of all retail sales.

There are several ways investors can capitalize on this enduring trend, and the three e-commerce stocks featured below (two of which might surprise you) all have real market outperformance potential for long-term investors.

Image source: Getty Images.

1. Amazon

Amazon (NASDAQ: AMZN) may be the most recognizable e-commerce stock in the world – and for good reason. In 2021, the company had total revenue of $469.8 billion. This is an increase of 22% compared to 2020. Despite this strong growth, the share price is down 5.8% since the start of the year and 16.8% compared to at its 52-week high.

Several economic conditions in the second half of 2021 worried investors and negatively impacted results. First, the labor market in the United States was very tight. The labor shortage prompted Amazon to pay bonuses and raise wages for many workers. The company has also faced increased costs related to COVID-19 mitigation efforts among its large workforce. Second, rising prices due to inflation and supply chain bottlenecks weighed on margins.

In total, these issues have added billions in additional costs to the bottom line. The good news is twofold. First, these elements are short-term headwinds that should resolve as the pandemic subsides or becomes more manageable. Next, Amazon has an ace in the hole with its growing Amazon Web Services (AWS) segment.

AWS provides cloud services to businesses, governments, and other organizations. The segment generated $62 billion in revenue in 2021, a whopping 37% increase from 2020. It also generated $18.5 billion of the $24.9 billion in total operating profit of the company. AWS has been a saving grace in a difficult year, and its strong growth looks set to continue. Once Amazon’s e-commerce business is freed from near-term headwinds, the combined company will be even more powerful, making Amazon a great choice for long-term investors.

2. Target

Many people think of Target (NYSE: TGT) like a brick and mortar store. But these days, its traditional commercial facade doesn’t tell the story of what’s really going on behind the scenes. Target has built a vibrant online presence, which has been given a big boost during the pandemic. In the third quarter of 2021, total sales increased by 12.7% after increasing by 20.7% in the third quarter of 2020. However, online sales increased by 29% in addition to an astonishing increase of 155% in third quarter 2020. There are two key takeaways here. First, the company is effectively pushing its digital sales platform. Second, the increase in digital sales caused by the pandemic will be long-lasting. This is evidenced by the company’s 29% improvement in 2021 compared to 2020 numerical figures.

Target’s 2021 results have been great so far (we’re still awaiting the release of fourth quarter results, which are due March 1). The company increased sales, operating income and net income through the third quarter of 2021. Diluted earnings per share (EPS) increased from $5.91 in the third quarter of 2020 to $10.87 through the third quarter 2021. Target is also a great stock to own when the market is uncertain, as it has been so far in 2022. Target pays an exceptionally reliable dividend in good times and bad. In fact, the company has maintained the dividend payment since October 1967 and has increased it every year for 50 years now, making it a Dividend King. The current dividend payment per share is $0.90 per quarter and offers a yield of 1.70%. The Target stock is currently trading around 20% off its 52-week high, which could offer investors the chance to get a discount for this unique retailer.

3.HR

HR (NYSE: HR), formerly Restoration Hardware, is another company that might not immediately come to mind as an e-commerce game. RH started out as a cash-and-carry retailer before morphing into the direct-to-consumer subscription model it follows today. RH has also transformed its brand into a luxury name in the furniture industry. Orders can be placed in one of the company’s terrific galleries or online. HR stock has had a pretty rocky start to 2022 and is down about 21% year-to-date.

Despite the fall in the share price, the company’s results are stronger than ever. Revenue for the third quarter of 2021 exceeded $1 billion, a 19% increase over the same period in 2020. Margins also increased, despite HR having to deal with supply chain issues. supply similar to Amazon. GAAP operating margin through Q3 2021 was 25%, a significant improvement from the 14% posted for the same period in 2020. Due to increased sales and higher margins, diluted EPS increased from $5.37 in Q3 2020 to $17.19 through Q3 2021.

RH has ambitious expansion plans underway. In 2022, the company plans to open its first international gallery in the UK. Locations should follow in France and Germany. Overall, the company estimates it has a $5-6 billion market opportunity in North America and a $20-25 billion opportunity globally. RH is now trading at a price-to-earnings (P/E) ratio below 20, which is its lowest valuation in over a year, as shown below.

Table of HR PE ratios

HR PE ratio data by YCharts.

HR is also a riskier game than Amazon or Target, as evidenced by the higher percentage of stocks sold short. Not everyone is convinced that management can sustain impressive results and successfully grow the brand.

Takeaway for investors

Each of the above stocks offers investors a chance to capture a share of the booming e-commerce market. Amazon is the world’s largest e-commerce company, while Target has an excellent physical footprint with rapidly expanding digital sales. RH is a luxury brand with excellent results and ambitious projects. Each of them could reward long-term investors with above-market returns.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Bradley Guichard owns Amazon, HR and Target. The Motley Fool owns and recommends Amazon and RH. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.