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An eight story car vending machine operated by Carvana in Huntington Beach, Calif.
Agence France-Presse/Getty Images
It’s always dangerous to bet against a stock as dynamic as Amazon. However, even if the e-commerce giant isn’t doomed for deep declines, it may be time to consider other consumer names that could outperform in the coming months.
For starters, Amazon.com AMZN, +0.32% hasn’t really gone anywhere since July; shares have plateaued after their early 2020 gains. Plus, with both Republicans and Democrats less than pleased with Big Tech lately and Europe levying antitrust charges against Amazon, the political winds aren’t exactly favorable.
Throw in the fact that the vast majority of investors are indirectly holding a good amount of Amazon stock simply because the $1.5 trillion company represents more than 4% in index funds benchmarked to the S&P 500 SPX, +0.24% and 10% of the Nasdaq 100 NDX, +0.87%, and it’s worth asking if you really should be adding to your exposure .
So if you’re looking beyond both Amazon and the pandemic, which stocks can you trust? Here are five ideas you may want to consider.
Big Lots
Big Lots Inc. BIG, +0.55% is a “closeout” and wholesale retailer that specializes in buying products in bulk or at deep discounts, and then passing those savings on to its customers. This business model alone should be appealing to investors as it benefits on both sides of today’s economic uncertainty.
Firstly, the cost savings offered by Big Lots are increasingly appealing to lower-income shoppers — those most likely to still be suffering under coronavirus-related shutdowns in the service industry. Secondly, this company buys up inventory from stores that go under — and many smaller retailers simply aren’t surviving the lack of foot traffic during the pandemic.
The numbers speak for themselves: earnings per share of $3.67 in fiscal 2019 are projected to more double in fiscal 2020 as revenue jumps 15%.
Beyond that, Big Lots’ important evolution into an “omnichannel” retailer as it rethinks the customer experience in their stores and online was really put into overdrive this year. Consider the well-timed decision in 2019 to introduce a feature where folks can buy online and pick up at the store. Big Lots quickly incorporated curbside pickup in all 1,400 of its locations this year. In fact, the retailer won the No. 1 spot in Total Retail’s 2020 Top Omnichannel Retailers Report — quite a feat for a brand some may have overlooked.
Shares have surged more than 70% this year, but remarkably still have a forward price-to-earnings under 9 and offer a generous 2.6% dividend.
It may not be the sexiest retail name out there, but the stock remains worth a look even after this run.
Carvana
A company that has a great idea at the right time, Carvana CVNA, +4.61% serves consumers eager for an alternative to the rigmarole of traditional car dealerships. It went public in April 2017 and closed its first day of trading at under $12 a share — and now sits at more than $200 per share.
Carvana has seized on the disruptions of the pandemic to improve its online car sales business even more and deepen its value proposition to consumers.
It’s safe to say that after Americans have had about nine months of touchless transactions for food, home goods and groceries that the time has never been better for this retailer’s model. Proof is a fiscal third-quarter performance reported at the end of October that featured many operational milestones for the company, including its first positive EBITDA margin in history as its gross profit per vehicle sold jumped to $4,056 — more than $1,000 more than its per-unit profit from the same time a year earlier.
This came alongside an impressive 41% surge in revenue even as consumer spending wasn’t exactly going like gangbusters during the harshest part of the pandemic.
The improvements in Carvana’s underlying business model coupled with a pandemic that has pushed many Americans to get much more comfortable with all-digital transactions adds up to a powerful narrative supporting continued gains for this stock. And considering that Carvana has less than 30 of its innovative “vending machines” in the U.S. at present and is only moving la little more than 20,000 vehicles per month in total, there is a ton of potential upside here.
Chewy
Chewy CHWY, +7.08% is a $26 billion pet powerhouse, capitalizing on the dual megatrends of reliance on online shopping and the never-ending upward climb in what Americans will spend on their dogs and cats.
Consider that after 2019 U.S. spending on pet products and services hit a record $95.7 billion, it is sure to top $100 billion for the first time this year, according data compiled by the American Pet Products Association. That’s a powerful trend, and Chewy continues to dominate online pet product sales with roughly 50% market share, according to reports.
Momentum stocks can always be nerve-wracking when they go on a tear, as Chewy has done in 2020 (up more than 120% since Jan. 1). But it seems short-sighted to call a top just because a possible coronavirus vaccine could send shoppers back to brick-and-mortar locations. After all, in the pre-pandemic fourth quarter of 2019 Chewy noted “autoship” sales of nearly $1 billion — up almost 41% over the prior year as folks opted for a regular schedule of food and treats rather than manually reordering each time the food bowl went empty.
With a sticky revenue stream like that and the big number of new owners of pandemic puppies and kittens, chances are the many new customers will stick around and continue to drive performance well beyond 2020.
Dick’s Sporting Goods
Recreational retailer Dick’s Sporting Goods DKS, -0.94% seized the opportunity created by the coronavirus to bolster its e-commerce and curbside pickup offerings. Net sales popped to $2.71 billion in its fiscal second quarter, a 20% increase compared to the same period in the prior year and led by online sales surging nearly 200%.
Sure, some of that was led by folks looking for golf balls and camping gear to do some socially distant activities. However, much like Chewy and its profitable focus on the pets market, it’s undeniable that sports is big business. Dicks will continue to capitalize on long-term spending trends well after the pandemic.
Many of us have personal stories of sticker shock after browsing high-tech moisture-wicking workout gear or softball bats made out of aerospace-grade materials. Even if you don’t, simply consider that the U.S. sports market is valued at $19.2 billion — considerably larger than even the $15 billion NFL. And you can bet that once the pandemic is under control, kids and parents alike will be eager to return to sports in earnest.
The stock price has rolled back in the last week or so on news of a potential vaccine, but it’s not fair to dismiss this as simply a stock that has only risen on the notion that folks sought to get outdoors in 2020. Improvements in its e-commerce platform will drive continued efficiencies in the long term, and Wall Street is projecting a 10% increase in earnings per share next year in part because of this.
As the old saying goes, never waste a good crisis. And Dick’s was shrewd enough to see the pandemic as an opportunity to continue its move beyond brick-and-mortar, which will pay dividends in 2021 and beyond.
Farfetch
Chewy managed to carve out a nice niche in pet products before the evil eye of Amazon focused on this slice of the consumer discretionary marketplace. Similarly, Farfetch FTCH, +0.09% and its focus only on high-end fashion is a sniper shot that hits the bullseye on a market that Amazon may have trouble dominating in the same way as products like electronics, underwear or kitchen tools.
Consider that back in the second quarter of 2019, well before the pandemic pushed people online, this retailer estimated gross sales on its platform hit $1.7 billion over the prior 12 months, enough to make it “the largest single destination for in-season luxury fashion in the world,” according to its founder. Since then, sales have only seemed to heat up, with projected revenue growth of more than 50% in fiscal 2020 and more than 30% top-line expansion forecast in 2021.
Admittedly, Farfetch is still unprofitable. But it seems very 20th century to pooh pooh an e-commerce platform growing this fast simply because it doesn’t post significant profits in the early days of its existence.
Besides, unlike Amazon with its race to the bottom in prices, there are higher margins to be had –eventually — in luxury goods like the items sold by Farfetch. And considering that at the time of its IPO Farfetch identified online luxury fashion as a $100 billion market, there is plenty of room for growth in the top line as well as the bottom line in the coming years.
Management seems well on its way to seizing that opportunity, and Wall Street has responded by bidding up FTCH stock more than 350% from where it traded a year ago. That surge began before the pandemic, and will not evaporate just because investors are trying to look beyond coronavirus and stay-and-home stocks.
More on Farfetch: Farfetch says luxury shopping has permanently moved online, shares jump
Jeff Reeves is a MarketWatch columnist. He doesn’t own shares in any of the companies mentioned in this article.
