Despite investor fears that e-commerce giant Amazon.com Inc. (AMZN) would steamroll the retail industry, four big retailers have adapted and are thriving, beating the company in stock performance. While shares of Amazon have gone nowhere over the past 12 months through Tuesday's close, Walmart Inc. (WMT) is up 24%, Target Corp. (TGT) is higher by 37%, Costco Wholesale Corp. (COST) is up 32%, and Ross Stores (ROST) has returned 16%. Barron’s outlined the trend in a recent story.
Significance for Investors
Amazon’s also has drastically underperformed the broader S&P 500, which has risen 9% over 12 months and nearly 20% year-to-date. This also coincides with a larger shift away from high P/E growth companies to safer, value stocks. “Over the last year, there were a couple periods where value exploded and momentum got crushed,” says George Pearkes, macro strategist at Bespoke Investment Group. “That tells us these stocks got beaten down, have value characteristics, and can really fly in certain conditions.”
Still, the four stocks that are leading Amazon are offering more than value. They often are beating Amazon in the marketplace. Here's a closer look at two of them.
Bulls at Credit Suisse cite at least four reasons that Target’s outperformance will continue, as outlined in another Barron’s report. Target has mounted a series of retail initiatives, including promising partnerships, while also benefitting from a strong U.S. consumer, bolstering earnings growth. Analyst Seth Sigman at Credit Suisse sees Target grabbing a big chunk of $9 billion in sales up for grabs thanks to recent store closures by competitors. He is also optimistic about a new loyalty program and omnichannel offerings.
Discount retailer Costco is likely to continue to perform well, according to Telsey Advisory Group, as outlined by Barron’s. “In our view, Costco should remain a share gainer, with its solid sales and traffic trends, high membership renewal rates, and square footage growth of low-single digits,” said analyst Joseph Feldman. He says that Costco will be able to manage lower foot traffic better than competitors, thanks to its exposure to categories like food and its presence in overseas markets, per Barron's.
To be sure, these four retailers are an exception when it comes to beating Amazon. Bespoke Investment Group's Death by Amazon index is comprised of 55 consumer retail names that are largely vulnerable to Amazon. The average company in the index has lost more than half of its value in the past few years, per Barron’s. That carnage is a reminder that Amazon remains an existential threat to most retailers with its low prices, fast delivery and over 100 million Prime families in the U.S.