Make no mistake about it. The big internet retail stocks have been absolutely on fire in 2019.
Thanks to a series of data-points ranging from renewed consumer confidence to big jobs growth to robust online retail sales growth, it has become increasingly obvious that the fundamentals underlying e-commerce stocks have meaningfully improved in 2019. Broadly speaking, consumers aren’t worried about a recession anymore, they are all employed, they are all getting raises and they are all shopping through online channels more heavily than ever before.
Consequently, the Global X E-commerce ETF (NASDAQ:EBIZ) has rallied around 30% year-to-date. Which e-commerce stocks are the big winners in this rally? Can they all stay red hot through the end of the year?
Let’s answer those questions by taking a looking at these red-hot internet retail stocks that have all staged huge, 20%-plus rallies so far in 2019.
Internet Retail Stocks to Buy: Amazon (AMZN)
YTD Gain: 30%
Why It’s Hot: E-commerce giant Amazon (NASDAQ:AMZN) has been red hot in 2019 for several reasons. First, the company is the face of the growth trade, and the growth trade has come back in favor in 2019 as financial markets have stabilized. Second, rates have dropped, and that helps support the valuation of long-term growth stocks like Amazon. Third, concerns related to the great slowdown of Amazon’s e-commerce business have increasingly appeared to be overblown. Fourth, Amazon’s ramp in digital advertising is creating a huge tailwind for margins and profits.
Why It’ll Stay Hot: Amazon stock will stay hot for a few reasons. First, rates project to stay lower for longer, and that will help support the stock’s valuation. Second, e-commerce growth rates should pick back up throughout the course of this year as broader economic and consumption fundamentals improve. Third, digital ad ramp will create a 2019 profit surge, which will further drum up investor enthusiasm.
YTD Gain: 39%
Why It’s Hot: Chinese e-commerce giant JD (NASDAQ:JD) has been on fire in 2019, mostly because China’s broader economic fundamentals and outlook have dramatically improved. Specifically, at the end of 2018, China’s economy was rapidly slowing, and that was dragging down JD’s growth rates at the same time that margins were being pressured by growth investments. That double headwind killed JD stock. In 2019, though, the narrative has flipped. China’s economy has stabilized, and even shown signs of improvement in some areas. This has brought investors back into beaten up China stocks, one of which is JD stock.
Why It’ll Stay Hot: JD stock should stay hot in 2019 because it still has a lot of ground to make up, and will have the fundamental firepower to do just that. This was once a $50 stock. Even after the huge year-to-date rally, the stock is still just around $30. Thus, there’s still more room for recovery. The stock should make that recovery in 2019, as the stock benefits from a double tailwind of improving growth rates and rising margins.
YTD Gain: 66%
Why It’s Hot: Online furniture retailer Wayfair (NYSE:W) has roared higher in 2019 because the company is firing on all cylinders. Its domestic business remains strong, and the company continues to distinguish itself as the leader in the U.S. e-commerce furniture market. Wayfair is also scaling the international business at a very healthy pace. Margins are moving higher, and making progress towards their long-term goals. All in all, the story and numbers have simply been really good in 2019, and Wayfair stock has consequently risen over 60% year-to-date.
Why It May Cool Down: Wayfair stock may cool down here for one simple reason: valuation. In short, the stock has sprinted ahead of fundamentals in the near term, and is due for some turbulence — in fact, we have already seen some. Not too long ago, this was a $170 stock. Now, it’s below $150. Thus, the stock has already had somewhat of a pullback. But historically speaking, this stock has pullbacks in the 20%-plus range. As such, recent weakness in Wayfair stock may last for a little bit longer before the stock ultimately reverses course.
YTD Gain: 38%
Why It’s Hot: Online arts and crafts retailer Etsy (NASDAQ:ETSY) has been on a monster run in 2019, mostly thanks to a strong holiday earnings report. Broadly speaking, the company reported robust holiday 2018 numbers that were strong across the board, from community growth, to sales growth, to margin expansion. Investors cheered those results, and bid up ETSY stock to fresh all-time highs.
Why It May Cool Down: ETSY stock has been cooling down for the past few weeks (more than 12% off recent highs), and will likely continue to cool down due to an overstretched valuation. The company has a well-defined niche in the secular growth e-commerce market. But, there’s a ton of competition among internet retail stocks, and it’s only a matter of time before that competition dilutes revenue growth. Meanwhile, EBITDA margins are already at 20%, and are only projected at 30% long term, so the margin drivers here aren’t that great. Overall, then, once revenue growth slows, ETSY stock could drop in a meaningful way.
YTD Gain: 67%
Why It’s Hot: E-commerce solutions provider Shopify (NYSE:SHOP) has been red hot in 2019 for a few reasons. One, the growth trade coming back into favor has certainly helped the stock, as have continued low rates and renewed consumer confidence. Also, coordinated economy trends in the e-commerce world have continued to gain momentum, and analysts have been sounding the bull horn on the stock amid positive channel checks. All in all, then, the bull thesis on SHOP stock has gained momentum and clarity, and the stock has subsequently soared higher.
Why It’ll Stay Hot: In the long run, Shopify stock is a winner powered by secular growth tailwinds in e-commerce, decentralization and cloud solutions. The stock may run into some near-term turbulence here as it’s been so hot, that it’s due for a minor pullback. But, the underlying trends here are powerful enough to offset any near term weakness, and will ultimately keep the stock on a long-term winning trajectory.
YTD Gain: 30%
Why It’s Hot: E-commerce marketplace eBay (NASDAQ:EBAY) has staged a huge comeback in 2019 amid a flurry of operational improvements. First, the backdrop improved meaningfully, with financial market and global economic conditions improving in the new year. Then, activist investor Elliott Management wrote an open letter to management in January, disclosing a $1.4 billion stake in eBay while painting a path for big long-term gains. Investors rallied behind that letter — and pretty good fourth-quarter numbers — and the stock has gained 30% in 2019.
Why It’ll Stay Hot: eBay stock could stay hot because it’s still pretty cheap. The stock trades at just 12 times forward earnings. That’s dirt cheap for an e-commerce player. To be sure, it’s mostly because there’s not much growth happening at eBay. Revenue growth is muted, and margins are maxed out. But, if the company can stabilize growth and margin trends (which is doable given the company’s wide reach and the secular tailwinds in the e-commerce market), then the stock should easily trade at a market average 16x forward multiple. That implies good upside from here, both through profit growth and multiple expansion.
YTD Gain: 27%
Why It’s Hot: Shares of e-commerce payment solutions provider PayPal (NASDAQ:PYPL) have roared higher in 2019 as the company has benefited from a plethora of fundamental tailwinds. Economic conditions have improved. Consumer confidence and spending has bounced back. E-commerce sales growth has remained robust. Specific to PayPal, Venmo has gained a ton of momentum, the company scored a big partnership with Instagram on their new Checkout feature, and analysts have been upgrading the stock in bulk.
Why It’ll Stay Hot: PayPal stock will stay hot because the secular tailwinds here remain healthy, and the economic situation globally is only improving. As such, the numbers will remain good for the rest of the year, the long-term growth outlook will continue to support a robust valuation and investors will continue to seek market-leading exposure to digital payments. All three of these factors will ultimately keep PYPL stock on a winning path in 2019.
As of this writing, Luke Lango was long AMZN, JD, SHOP, EBAY and PYPL.