Here’s why you may want to own these 2 retail stocks.
There are two retailers that have seen surging sales amid the pandemic that one trader says investors should have in their portfolios.
Quint Tatro, president of Joule Financial, says investors should stock up on Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) shares now.
“You should own both and you get a pretty good bang for your buck,” Tatro said of the two stocks. “I like [Walmart’s] push into e-commerce, and certainly what the company is doing to sort of expand what they’ve been known for all these years. It’s really great to see.”
Walmart said this week that it will launch its much-anticipated Walmart+ membership program on September 15, with hopes to build on the strength of its grocery business and customers’ desire for more convenient ways to shop.
Walmart+ will cost $98 per year—or $12.95 per month—and will offer subscribers free unlimited delivery on orders that meet a $35 minimum, putting it head-to-head with Amazon’s Prime membership service.
But despite the two services’ similarities, Tatro says thinking of the two retail giants as the same given their membership services doesn’t fit.
“The idea of [Walmart] being a direct competitor to Amazon is a little stretched,” Tatro said. “You can literally get anything on Amazon.com, and that’s just not the case yet with Walmart.”
Still, Tatro argues Walmart is doing just fine without becoming another Amazon.
“Walmart is pretty attractive trading 25x forward earnings and 0.72 price-to-sales, and relatively healthy balance sheet.”
Jefferies analyst Christopher Mandeville wrote in a note this week that Walmart+ looks to provide plenty of opportunity for the company.
“We believe this is the right time for Walmart to capitalize on accelerated e-commerce demand by leveraging its incumbency in grocery and superior omnichannel capabilities to make progress towards establishing a legit ecosystem that a potential TikTok deal could make whole,” Mandeville said.
Mandeville has a Buy rating on Walmart shares with a $157 price target
And Citigroup analyst Paul Lejuez—who has a Buy rating and a $155 price target on Walmart—said in a note this week that Walmart+ may see wider adoption than Amazon Prime.
“Because the service is at a discount to Prime ($98 vs. $118 for Prime) it may appeal to a broader audience on both the lower end of the economic spectrum (is cheaper) as well as the higher end (for those that aren’t already Walmart customers, it is an affordable way to access the benefits offered by WMT+, even if in addition to a Prime membership,” Lejuez said.
Ascent Wealth Partners managing director Todd Gordon agrees Walmart looks attractive now, and noted a key difference between its Walmart+ service and Amazon Prime.
“There has been a significant underperformance of Walmart compared to Amazon,” Gordon said. “Looking at Walmart+, it’s more of a grocery play designed to ship fresh food from their existing locations.”
Amazon, for its part, is moving more into the grocery business, recently opening its first Fresh grocery store in Los Angeles late last month and announcing this week that it plans to open its first online-only Whole Foods store in Brooklyn.
“Grocery delivery continues to be one of the fastest-growing businesses at Amazon,” the company said in a blog post announcing the new online-only Whole Foods location. “We’re thrilled to increase access to grocery deliver. It’s never been more important.”
The launch of the new, online-only store format comes as the coronavirus pandemic has resulted in a flood of demand for grocery delivery for Amazon and other grocery retailers. In fact, Amazon said its online grocery sales tripled year-over-year in its second quarter and its grocery delivery capacity grew by more than 160% in the quarter.
Amazon added that it has recently hired hundreds of new employees who will be “100 percent dedicated to facilitating grocery delivery” at the store.
One other thing playing into Amazon’s hand is its Prime Air delivery service, which was just granted FAA approval.
“This certification is an important step forward for Prime Air and indicates the FAA’s confidence in Amazon’s operating and safety procedures for an autonomous drone delivery service that will one day deliver packages to our customers around the world,” said David Carbon, vice president of Prime Air, in a statement. “We will continue to develop and refine our technology to fully integrate delivery drones into the airspace, and work closely with the FAA and other regulators around the world to realize our vision of 30 minute delivery.”