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1 Retail Winner We Can All Agree On

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In spring, Lord Tennyson tells us, a "young man's fancy lightly turns to thoughts of love." Presumably, the poet knew whereof he wrote. But one thing I'm sure of: When winter rolls around, Fools of all ages turn to thoughts of retail stocks.

Black Friday sales figures. Cyber Monday. 20 lbs. of Christmas circulars arriving with every Sunday paper. For us, 'tis the season to start picking winners and losers in the retail sphere.

Here at the Fool, we aim to steer you right in this paperchase, to help you find the winners and avoid the losers. So in this first installment of our "12 Days of Christmas" saga, I want to make sure you get off to the best possible start -- with the absolute best retail idea out there: (Nasdaq: AMZN  ) .

Forget the rest ...
How do I know that Amazon's "the best" retail stock in the world? Well, there was Goldman Sachs' (NYSE: GS  ) say-so last month of course. But really, that only confirmed my own thinking about Amazon. Every investor takes his own approach to stockpicking, you see. In picking Amazon today, I follow the advice of another famous Briton: "When you have eliminated the impossible, whatever remains, however improbable, must be the truth."

When I surveyed the retail field recently, it began to dawn on me that there's something ... different ... about Amazon. Something that sets it apart from the multiple other investments available to us in this field:

Wal-Mart Stores (NYSE: WMT  )
The undisputed king of efficient bricks-and-mortar retailing, it's hard to argue with Walmart's success as a business -- but it's even harder to argue in favor of the company, period. Seems every time you turn around, someone's criticizing Wal-Mart for some new supposed offense against humanity. If the company's not mooching off the U.S. taxpayer, it's laying waste the local hardware store. One day it's union-busting; the next it's poisoning babies. The claims may be exaggerated, but the fact remains: With so much negative publicity swirling around, it's awfully hard to love Wal-Mart, Warren Buffett's purchases of the behemoth notwithstanding.

Sears Holding (Nasdaq: SHLD  )
And then there's Sears. It may not attract as much criticism as Wal-Mart -- but that's only because in the world of retailing, Sears has become an afterthought. Turns out, the "softer side of Sears" refers to its sales figures. And with economies of scale on the wane, Sears continues to post negative profit margins. Long story short, Sears is on the cutting edge of retailing acumen ... for 1950 -- and overmatched today.

Costco (Nasdaq: COST  )
In contrast to Sears, Costco has figured out a 21st-century way to make big-box retailing work. Selling in bulk, Costco's low prices attract customers by the droves, while it really profits off the annual membership fees it charges 'em for the privilege of visiting its stores. Yet there are concerns over the firm's exposure to the hemorrhaging economy of California and less-than-stellar sales and earnings growth over the last three years (sales up an average 5% per year; earnings off 0.5%). (Nasdaq: OSTK  )
Writers take potshots at Patrick Byrne at their own risk -- but recent reports that the Overstock CEO is compiling an electronic "hit-list" of journalists deemed unfriendly to the company are truly frightening (and some have suggested, legally questionable). While the company has done a reasonable job of maintaining sales and generating free cash flow in the middle of the Great Recession, investors would be foolish (small "f") to discount the risks of investing in a company ... run by a madman.

Starbucks (Nasdaq: SBUX  )
Has the company that brought great coffee to the masses lost its mojo? Starbucks bulls point to cost cutting and a renewed focus on generating free cash flow as factors in its favor. But bears reply that Starbucks sells little more than McCafe ... without the benefit of being ironic.

Just buy the best
In short, everywhere you look, there's knocks against these retailers. For every investor who loves 'em, there's another with an axe to grind.

But Amazon? Who could hate Amazon?

Oh, I know that some investors worry about the stock's valuation, and yes, that 77 P/E does come a-shocker at first glance. But as I argued back in October, Amazon is "debt-free, and boasting prodigious free cash flow and a rip-roaring growth rate." All of these factors tell me that Amazon's price tag isn't quite as high as it seems.

Simply put, free cash flow concerns are a thing of the past. Sales are going gangbusters as customers flock to the Kindle, and Amazon locks 'em into loyalty plans with its bargain priced "Amazon Prime" deal. And just how genius was it for Jeff Bezos to come up with the idea of shipping every cardboard package ... with a smile emblazoned on the side? It's just not possible to hate a company like this.

Foolish takeaway
After eliminating the other possibilities, I'm left with the firm conclusion: Amazon's the best., Costco, and Starbucks are Motley Fool Stock Advisor recommendations. Costco, Sears Holdings, and Wal-Mart are Inside Value recommendations. The Fool owns shares of Costco and Starbucks.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy is the gift that keeps on giving.

Read/Post Comments (11) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2009, at 5:29 AM, Clint35 wrote:

    I agree completely. You can find anything you want at amazon without even leaving home. Any order over $25 ships for free. Even shipping costs on orders under $25 are very reasonable. The few times I've needed help with something on the website, they were actually helpful. If you ever need help at walmart the help is terrible or takes forever. The last time I went to Best Buy they didn't have the camera I was looking for (and the store was practically empty). But Amazon had it at a great price. I agree they're the best. Oh, I almost forgot I love and was a subscriber for about a year. Amazon owns them.

  • Report this Comment On December 15, 2009, at 1:28 PM, TMFBent wrote:

    Rich, welcome to the enemies list.

  • Report this Comment On December 18, 2009, at 4:44 PM, FleaBagger wrote:

    WMT is worth at least as much as it costs. AMZN is not.

  • Report this Comment On December 18, 2009, at 5:00 PM, FleaBagger wrote:

    WMT is worth at least as much as it costs. AMZN is not.

  • Report this Comment On December 18, 2009, at 9:41 PM, johnhenr wrote:

    I love WalMart, exactly because they won't give into the tactics of the union thugs and because they keep on plugging along while the naysayers continue nipping at their heels. GO WALMART!

  • Report this Comment On December 19, 2009, at 2:30 PM, plange01 wrote:

    there are no winners in a depression...

  • Report this Comment On December 19, 2009, at 2:34 PM, shortgains wrote:

    amzn is a bullish ticker although i will not pay 70x P/E for a company without incredible earnings growth in the forecast and this company has peaked price wise

  • Report this Comment On December 20, 2009, at 9:42 AM, strongdollar wrote:

    Instead of buying this expensive stock why not buy an undervalued shipper (like ATSG) that will benefit from the increasing mail order business?

  • Report this Comment On December 20, 2009, at 10:50 AM, plange01 wrote:

    3 bankruptcys in the works for 2010 .sirius soon to be delisted and long overdue. this one has seen very special treatment by nazdaq but its losses are still hertz hedge fund controlled and extremely poorly run with huge debt to top it off. after a reprsie in 2009 as car rentals did fair this has already changed and this one wont be able to keep up with huge debt payments.last the one you already know! GM the disgraced automaker living off taxpayers welfare checks.its losses grow by the day with no chance of a change.this one should have been closed months ago but its never to late!!

  • Report this Comment On December 20, 2009, at 4:52 PM, streetflame wrote:

    I disagree completely. AMZN is hopelessly overpriced.

    There are very few US listed retail companies at good prices. Maybe Conn's, Gamestop and CVS. To find the best retailers you have to go to emerging markets.

  • Report this Comment On December 20, 2009, at 6:34 PM, greenwave3 wrote:

    AMZN is a strong retailer, but buying at these levels is only an invitation to lose money.

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