Amazon, Costco and Walmart Stock Edition

U.S. retail is a multi-billion dollar industry and a pillar of the U.S. economy. Amazon (NASDAQ: AMZN), Walmart (NYSE:WMT)AND Costco Wholesale (NASDAQ: COST) These are industry titans and world-class stocks that have outperformed the broader stock market over the years.

These companies generate an astonishing $1.5 trillion in annual revenue. Their size gives them a cost advantage over smaller competitors, and they are poised to continue to grow for decades to come.

However, their shares are not equal. While all three are blue-chip stocks, their different prices give investors something to think about. One of these actions is buy, one is hold and the other is sell. Scroll down to see which is which.

Buy: The e-commerce giant is operating at full speed

Amazon has become the dominant e-commerce retailer in the United States. The company has amassed a whopping 37.6% market share, miles ahead of number two Walmart. No other company has the supply chain capabilities to deliver such a wide range of products to consumers quickly, creating an unparalleled consumer experience. The subscription service, Amazon Prime, only strengthens the value proposition with streaming and other benefits.

But Amazon’s appeal goes beyond e-commerce; The company’s cloud platform is also a global leader. Amazon Web Services is a pillar of the digital economy and a cash cow generating huge profits. Management invests these profits throughout the company to create opportunities for future growth. Perhaps no company expands as aggressively into new and existing markets as Amazon, which means there is no limit to its long-term investment potential.

Despite its history of creating millionaires, Amazon stock is still somewhat cheap. Amazon’s heavy investment in growth masks the fact that the stock is at a decade low when you compare operating cash flow to share price. Meanwhile, analysts expect earnings to grow by almost 30% annually over the next few years. Don’t hesitate to buy stock and hold it for the long term.

Hold: America’s largest retailer could shine in a recession

Walmart is the largest retailer in America; about 90% of the country’s population lives within walking distance of a store. The company is known for its low prices, as well as for leveraging its enormous size and bargaining power. Walmart’s network of stores and its ability to reach customers have enabled Walmart to grow. The company has expanded into other retail categories, including big box, Sam’s Club, and e-commerce.

History continues

Unfortunately, Walmart’s inventory is not as valuable as its products. The stock currently trades at a price-to-earnings ratio of 28. That’s a premium to the broader stock market, likely due to Walmart’s stellar reputation on Wall Street. The company has paid and increased dividends for 51 years in a row, and its fortress-like balance sheet proves it. Additionally, Walmart will likely thrive in a recession because consumers will abandon the competition and save Walmart money.

Analysts expect Walmart to continue to grow for years to come, but estimates suggest long-term earnings growth averaging just over 7%. It’s hard to justify buying at this valuation when all you get is single-digit earnings growth. Holding the stock might not be a bad idea given Walmart’s great fundamentals, but it’s probably best to hold off on buying for now.

Sales: This popular big box retailer is woefully expensive

It’s almost painful to write this next part, but there’s no ignoring the facts. Look, Costco is a really great company. Its size alone allows it to offer products at low prices, and its famously loss-making products, like its $1.50 hot dog, have created a cult following and loyalty among its shoppers. The membership fee that consumers pay to shop at Costco is brilliant, and it’s a major source of profit.

But despite its fantastic business, Costco stock has become so expensive that it’s worth considering selling some of its shares. The stock is trading at a whopping price-to-earnings ratio of more than 52, even though analysts believe long-term earnings will grow by just 9.5% annually. That seems doable, given Costco’s ever-expanding store footprint and the potential for membership fees to increase.

Almost 10% growth is nothing unless you pay more than 50 times earnings. Stock prices have no margin of safety, which is a dangerous situation if a recession hits and buyers open their wallets. Instead of taking the risk, consider selling and returning when the price makes more sense.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no holdings in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.

Buy, Sell, Hold: Amazon, Costco, and Walmart Stock Release Originally Published by The Motley Fool