Amazon vs. Best Buy Stock: Which is Best?

Amazon vs. Best Buy Stock: No matter what the economic conditions, certain retailers thrive. For example, Wal-Mart, Costco, and Target have managed to survive the complexities of 2020 with minimal disruption. However, the vast majority of retailers suffer when the economic climate is uncertain.

After all, consumers facing unemployment and other financial stressors are concerned with getting bills paid now and in the near future, so they carefully consider how to best utilize every dollar.

That’s bad news for retailers specializing in non-essential goods. Does that mean retail stock is the wrong choice for investors? Not necessarily. There are pros and cons to consider as you build out your portfolio. 

Pros and Cons of Investing in Retailers

Long before the novel coronavirus, industry experts noted a “retail apocalypse”.

Changes in consumer behavior and the rise of e-commerce have challenged long-standing brands, and many have already failed.

The events of 2020 added additional stress to companies that were already struggling, and the list of casualties is already long.

Some of the retailers that are reorganizing or liquidating include Neiman Marcus, Pier 1, Modell’s Sporting Goods, J. Crew, and JCPenney – to name a few. 

Under the circumstances, it is easy to understand why investors are cautious about putting their money into retail stock, but avoiding the entire category is a mistake.

The right retail stock – the sort that grows when stock in other niche retailers shrinks – can provide the sort of diversification that protects your portfolio from the worst of market ups and downs.

Amazon [AMZN] and Best Buy [BBY] are two massive brands that have the attention of analysts and industry experts in the current conditions. The question is, when considering Amazon vs Best Buy stock, which is best? 

Is Amazon Stock A Good Buy?

When it comes to 2020’s winners and losers, Amazon tops the win list. The COVID-19 crisis was tailor-made for Amazon to shine.

This is a company that sells just about everything, from streaming video to groceries. Every purchase can be completed online, and delivery is fast and often free.

That’s exactly what consumers under stay-at-home orders want, which means that Amazon enjoyed a dramatic expansion of its customer base. 

Share prices easily weathered the March market crash, and according to first quarter earnings reports, net sales increased 26 percent to $75.5 billion year-over-year.

It’s true that the company saw its net income for the quarter decline quite a bit, from $3.6 billion last year to $2.5 billion this year, but that was almost entirely due to expenses related to reconfiguring its supply chain to meet the unexpected challenges of entire nations going into quarantine. 

Amazon management has made it clear that they don’t expect profits to bounce back in the second quarter. While the company expects to see continued revenue expansion, it has committed to investing any available cash into improving its distribution channels to benefit customers and making employee safety a priority.

While that might be disappointing for investors in search of big profits now, those with an eye on the company’s future can see the value.

Improving Amazon’s ability to deliver products to customers quickly may render brick-and-mortar retailers – even the essentials like grocery stores and pharmacies – all but obsolete.

Addressing employee safety also spells long-term success, as some of Amazon’s biggest challenges have been with public perception that the company doesn’t care for its workers. 

Shares of Amazon aren’t exactly cheap, but there is no guarantee they will get much lower. Those that want to be on-board for future profits may wish to buy now. Those who are gambling on the possibility of a price drop may wish to wait for the second quarter financial reports, which may temporarily push the stock price down. 

Should You Invest in Best Buy?

Certain retailers are in a precarious position given the current state of the economy. At first glance, Best Buy might seem to be one of them, because the company is best known for pricey electronics that many do not count among essential purchases.

That view seemed to be validated in the company’s most recent earnings report, which showed a 6 percent drop in sales for the quarter as compared to the same period last year. 

Though that figure doesn’t seem like a positive sign, the fact that it only dropped 6 percent is nothing short of a miracle under the circumstances.

Best Buy was able to prevent a larger decline in sales by emphasizing its e-commerce channel and introducing contactless delivery options like curbside pickup. In fact, the company grew its online sales 155 percent year-over-year in the United States. 

There are a number of  investors and analysts that think Best Buy is a smart choice right now for two very good reasons. The company showed an impressive ability to adapt to changing circumstances, which bodes well for any additional crises that might present themselves in coming months. 

Second, the drop in sales and related drop in profits has some investors spooked, pushing share prices down. That means now is a great time to buy stock at discounted prices. While there may be a delay in Best Buy’s ability to fully recover and return to growth and expansion, those that get on-board now are likely to be rewarded in the future. 

Amazon vs Best Buy Stock: The Bottom Line

Neither Amazon nor Best Buy is making any big promises about profitability in coming quarters, but both have shown they are capable of surviving and thriving in difficult market conditions.

While either is a solid choice for your portfolio, Amazon has an edge. It’s less affordable than Best Buy, but it has a far larger growth trajectory. That means greater long-term rewards.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.