Buy low and sell high. It sounds easy. But as every investor knows, it’s much harder in practice. I would argue it’s because of the “buy low” part. Most investors hesitate to buy stocks that have recently tumbled in price.
For example, in October 2008, less than a month after Bear Stearns went bankrupt, Warren Buffett penned a New York Times op-ed. In it, Buffett offered a simple strategy for when to buy stocks: “Be fearful when others are greedy, and be greedy when others are fearful.”
With that advice in mind, I want to cover three e-commerce stocks that, in my opinion, have dropped too much due to fear. Each of these stocks is down more than 25% year to date, and I think it’s time to get greedy.
The first thing to acknowledge with Amazon (NASDAQ: AMZN) is that its gigantic e-commerce business is not performing well. In its most recent earnings report, management noted that overall operating margins dipped to 3.2%, primarily due to the higher cost of fuel and increased labor costs. In many ways, Amazon’s e-commerce division is a proxy for the U.S. economy. And as inflation-adjusted growth has slowed in the U.S., so too has Amazon’s growth rate and profitability.
All that said, the U.S. economy will bounce back eventually. And when it does, Amazon will still be the leader in e-commerce. In fact, a recent survey estimates that Amazon alone accounts for about 40% of all e-commerce in the U.S. If you take the next 14 largest competitors combined, those companies would account for only 31% of the market. Amazon’s e-commerce size and scale are difficult to comprehend and almost impossible to dislodge.
What’s more, being an Amazon shareholder means owning more than just its e-commerce business. You also get a cut of its web services (AWS) and advertising segments. AWS has long been Amazon’s growth engine, while its advertising business continues to take market share from Alphabet and Meta. When you buy Amazon stock, you get the whole package — and that’s a very good thing.
Athleisure brand Lululemon (NASDAQ: LULU) is my second e-commerce name to buy. The company reported an earnings beat in the first week of June. Despite record levels of inflation, the company continues to surpass analyst expectations on the back of its pricing power.
Lululemon has raised its prices aggressively as labor, materials, and freight costs have soared. As a result, the company’s high growth rates remain intact. Quarterly revenue growth was 32% year over year. Moreover, Chief Executive Officer Calvin McDonald has set a plan to double the company’s revenue within five years.
It’s all possible due to Lululemon’s upscale product offering and business strategy. The retailer’s revenues are split almost 50/50 between brick-and-mortar and online sales. In terms of products, many people are familiar with its high-end fitness and yoga apparel geared toward women. However, the company has now expanded into men’s clothing and footwear, which are growing even faster. Given Lululemon’s pricing power and impressive growth, it’s a name I want to own now and for many years to come.
My final e-commerce pick is Chewy (NYSE: CHWY). This one’s all about the pets. While Amazon has a competitive advantage due to its enormous scale and Lululemon boasts impressive pricing power, Chewy has a long-term trend on its side: the humanization of pets. In fact, the company’s mission statement puts the trend front and center: Chewy aims to be “the most trusted and convenient destination for pet parents and partners everywhere.” To this end, Chewy operates an online pet food, treats, accessories, and medicine marketplace. It also offers services, including pet insurance.
Chewy recently reported a surprise profit of $0.04 per share — beating analyst estimates for a $0.14 per share loss. Revenue grew to $2.43 billion in the fiscal first quarter (the three months ending on April 30), up 13.7% year over year. The company’s active user base grew to about 20.6 million. Moreover, those active users are generating an average of $446 in net sales for Chewy.
Looking ahead, the overall stickiness of the pet business should provide Chewy some protection in the event of an economic slowdown. Those of us with pets know that many pet items (be it food, kitty litter, or medicine) are simply essentials. Pet parents will find a way to get our pets what they need — no matter what.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Amazon and Lululemon Athletica. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Chewy, Inc., Lululemon Athletica, and Meta Platforms, Inc. The Motley Fool has a disclosure policy.