4 Adaptable Online Retail Stocks to Buy as E-Commerce Marches On
With the sector’s strong performance last year, it may be challenging to find reasonably priced online retail stocks to buy. With the novel coronavirus accelerating the shift from bricks and mortar to shop at home, online retail stocks soared to what could be unsustainable valuations.
What do I mean? Take a look at the forward multiples for Chewy (NASDAQ:CHWY), Shopify (NYSE:SHOP) and Wayfair (NYSE:W). Investors more than priced-in pandemic tailwinds into all three. Yet, instead of trying to chase these more disruptive plays, there may still be opportunity in 2021 for the more adaptable ones.
What do I mean? Brick-and-mortar names that successfully pivoted to an omnichannel sales strategy. But also, more established e-commerce names, where risk/return remains more in your favor. Admittedly, focusing too much on valuation didn’t matter much in 2020. Growth at any price was the name of the game.
But, as the new year unfolds, that could change. With more reasonable valuations, and e-commerce tailwinds backing them up, take a look at these four online retail stocks to buy:
Online Retail Stocks to Buy: Best Buy (BBY)
Like with Target (more below), Best Buy is a brick-and-mortar retailer that has pulled off an omnichannel strategy. Yet, it wasn’t enough to keep investors excited through the holiday season.
During the Thanksgiving-to-New Year’s period, BBY stock fell from around $120 per share, to just under $100 per share. But, this big pullback may be a great buying opportunity. Analysts like Goldman Sach’s Kate McShane may be bearish about its 2021 prospects. Seeing 2020’s pandemic-driven results as one-and-done, among other concerns, McShane downgraded shares to a “sell,” with a $97 per share price target.
Yet, it may be too early to say the party’s over for the electronics chain. With the sell-side community expecting earnings to slightly dip in the coming year, a muted 2021 may be more than priced-into shares. Trading at a forward price-to-earnings (P/E) ratio of 12.8, Best Buy stock is a lot cheaper than other ominchannel plays.
And, as UBS put it in their Dec. 18 research note, BBY stock remains well-positioned going forward. As the company’s investments in e-commerce continue to pay off, UBS sees further gains for this resilient retail play. Future gains may be limited relative to 2020’s performance. Yet, keep this resilient retail name top of mind in 2021.
This venerable online retailer may have made its bones before some in the Robinhood trading community were even born. But, there may be opportunity today with dotcom darling Ebay stock.
Yes, as a more mature e-commerce company, you won’t see the tremendous growth you see with the aforementioned priced-to-perfection names. But, as this Seeking Alpha contributor pointed out, investors are pricing it as if it’s struggling to survive.
Simply put, this is irrational. Amazon (NASDAQ:AMZN) may be the top dog. However, in terms of monthly site traffic, eBay’s marketplace remains firmly above onmnichannel names like Target and Wal-Mart (NYSE:WMT). Not to mention, rising e-commerce stars like Etsy (NASDAQ:ETSY) and Wayfair. But, its market strength isn’t the only positive for the stock. Shares sport a low valuation (forward P/E of 13.8) as well.
Put it all together, and this remain a more conservative way to play the continued rise of e-commerce. Sure, don’t expect high top- or bottom-line growth. But, shares could still rise, as investors appreciate the underlying value of this resilient e-commerce play.
Yes, after discussing my concerns about e-commerce stock valuation, it may be odd I’m including OSTK stock on this list. Sporting a forward P/E of 45.8, this online retail name is hardly a value play.
Yet, as InvestorPlace Senior Investment Analyst Luke Lango detailed in November, Overstock remains an enormous long-term opportunity. Thanks to its fortuitous turnaround just before the outbreak, the once-fading home goods retailer was able to seize the opportunity when the stay-at-home economy sprung up last spring. But, even after triple-digit growth in the second half of 2020, there’s plenty left on the table in 2021.
How so? The sell-side community still views 2020’s blockbuster performance for e-commerce as a one-time event. With the recent vaccine news, many are anticipating a full-on return to normal in 2021. But, even if vaccines prove to the silver bullet that gets us back to the old normal, e-commerce isn’t going anywhere.
Pandemic or no pandemic, investors will continue to shift their shopping online. As spending on home goods and related verticals continues to move out of brick-and-mortar, expect names like Overstock to beat expectations. Given its rich valuation, shares could tumble if markets correct in 2021. But, as ample runway remains, it may be worth the risk.
When the pandemic first hit America late last winter, some (including myself) thought it was bad times ahead for big box stores like Target. But, as one of the few retailers open during lockdowns, shares in this chain, and its peer, Wal-Mart, quickly recovered.
In the case of TGT stock, shares rebounded from the coronavirus crash in less than two months. The stock more than doubled off its March lows, surging to prices nearing $180 per share. Yet, even as shares remain near their highs (around $176.50 per share), there could be more runway left for this resilient retail play.
Why? Chalk it up to the chain’s omnichannel strategy. The chain smartly shifted toward this business model just before Covid-19. And, as this pivot paid off in 2020, the company continues to bank on it for its future.
As this Motley Fool commentator put it Jan. 1, Target is mastering modern retail. With its ample opportunity to “level up” in 2021, along with its reasonable valuation (forward P/E of 19.7x), this remains one of the best online retail stocks to buy.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.