3 Best Ecommerce Stocks to Buy Right Now

The transition to e-commerce is in full swing. The pandemic has accelerated this trend, but let’s face it: the rise of e-commerce is inevitable. According to Statista, e-commerce retail sales reached $4.9 trillion worldwide in 2021 and are expected to reach over $7.3 trillion in 2025. The United States alone accounted for $768 billion in this past year.

Many companies that we don’t typically associate with e-commerce have entered the fray and are bolstering their legacy businesses. The companies below could help long-term investors outpace the market.

Image source: Getty Images.

O’Reilly Automotive

Let’s start with an unconventional e-commerce business. O’Reilly Automotive ( ORLY 0.45% ) is probably not the first name that comes to mind when it comes to online shopping. However, its growth strategy is focused on omnichannel. Professional service providers can now place orders and receive local delivery through O’Reilly’s exclusive platform designed just for them. At the same time, DIY customers can do the same through the company’s website.

O’Reilly could also capitalize on the huge inflation we are seeing in the new and used car markets. Gone are the days of haggling with the dealer for a deal well below the Manufacturer’s Suggested Retail Price (MSRP). Instead, new car buyers are shocked by the stickers. Thanks to dwindling inventory and the rising cost of new cars, used car prices have risen more than 40% over the past year. As a result, it’s a safe bet that many drivers will keep their vehicles longer, and demand for parts from professional service providers and DIY car owners will remain strong.

The company is already showing impressive results with revenue reaching $13.3 billion in 2021, up 15%. The company’s diluted earnings per share (EPS) also rose 32% to $31.10 last year. This was partly due to the company’s lucrative stock buyback program, which totaled nearly $2.5 billion in 2021 alone. O’Reilly shares have gained more than 40% over the course of the past year and the company is poised to continue its impressive long-term run.

Target

Target (TGT 0.72% ) is another retailer that has embraced e-commerce and has caused a stir in recent years. In fiscal 2021, comparable sales increased 12.7%, while digital growth reached 20.8%. Even more impressively, this performance follows comparable online sales growth of 145% in fiscal 2020 due to COVID-19. Digital accounted for 19% of the company’s $104.6 billion in total sales last year, and Target drives 95% of those digital sales through its existing stores, allowing it to leverage existing assets. Target actually increased its operating margin in 2021 despite a difficult working environment.

A reliable dividend can be a long-term investor’s best friend in times of uncertainty. Target hasn’t missed a dividend payment since 1967, two years before Apollo 11 landed on the moon. It also increases the payment for 50 years. The dividend currently yields around 1.7%. While nothing out of the ordinary, a steadily increasing dividend should increase a shareholder’s effective return over time.

Table of TGT dividends

Data by YCharts.

Amazon

I would be remiss if I did not mention Amazon ( AMZN 0.69% ) when considering e-commerce stocks. Especially in light of its recent blockbuster stock split announcement. Management has announced that the company will undergo a 20:1 stock split and begin trading on June 6, 2022. Individual investors have been calling for this split for some time.

However, the most significant impact may be the company’s potential for inclusion in the Dow Jones Industrial Average. Due to the way the Dow Jones is calculated, a stock that trades for thousands of dollars can hardly be added to the index. Once Amazon’s shares are split, it could be a first candidate for inclusion.

The stock split announcement also lost a $10 billion share buyback authorization. While this won’t affect the company’s outstanding shares much, the signal from management is that they believe the stock is undervalued. It could also be a sign of more stock buybacks to come.

The company’s e-commerce business faced severe headwinds in 2021 related to additional labor costs and logistical expenses associated with COVID-19. This squeezed margins for Amazon’s North American and International segments. However, AWS took over as usual. The cloud computing operation’s revenue grew 37% to $62 billion in 2021, and all with a 30% operating margin. This helped the company achieve record sales of $469.8 billion for the year. Amazon could easily overtake the market in the future as headwinds in online retail ease.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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