Please ensure Javascript is enabled for purposes of website accessibility

2 Retail Stocks Poised for a Bull Run

By Will Ebiefung - Jun 27, 2020 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retail industry is rapidly evolving. Here's how you can benefit.

The retail industry has been hit hard during the coronavirus pandemic because of lockdowns and social distancing. But not all retail stocks are created equal -- some have strong business models that can thrive in these uncertain times and deliver market-beating returns over the long term. Here are two retail stocks poised for a bull run.

The first is Walmart (WMT 0.29%), a massive American retailer that is expanding into e-commerce and international logistics. The second is (JD 1.63%), a fast-growing online retailer that leverages its vast network of distribution and fulfillment centers to give it an edge over competitors in China.

A bag of groceries on top of a laptop.

Image Source: Getty Images.

Walmart: Stable growth with a massive e-commerce opportunity

With $534.7 billion in sales over the past four quarters, Walmart is the biggest company in the world by revenue -- and it isn't done growing. While Walmart's U.S. brick-and-mortar supermarket business is mature, the company is positioned for a massive expansion in its e-commerce operations.

Walmart can leverage its physical infrastructure to compete with rivals like to deliver a high-quality online shopping experience while keeping logistics costs in check. The company has 5,542 stores and distribution facilities in the U.S, and 11,909 around the world. This physical footprint can help it fulfill online orders as quickly and cheaply as possible because of its proximity to the consumer.

In fiscal 2020 (which ended in January), Walmart launched next-day delivery to over 75% of the entire U.S. population, and expanded same-day pickup to nearly 3,200 locations in the country. The company's large network of stores allows it to outsource delivery services to third-party providers like DoorDash and Postmates.

Walmart's e-commerce business experienced high demand during the coronavirus pandemic as people turned to online shopping to help with social distancing. Total company revenue grew 8.7% from $122.95 to $133.67 billion, while Walmart U.S. e-commerce sales soared 77% and e-commerce sales at its subsidiary Sam's Club grew by 43%. Online sales currently represent around 9% of Walmart's U.S. net revenue ($88.74 billion) and 6.6% of Sam's Club net revenue ($29.76 billion). Logistics will be an edge over the competition is China's second-biggest e-commerce company, behind Alibaba Group. But unlike its larger rival, it operates mainly as a first-party online retailer instead of a third-party online platform. The company's business model is similar to, as it also benefits from a large physical logistics infrastructure that gives it an edge over its leaner competitors. operates a network of over 730 warehouses, with front distribution centers in 29 cities. This physical footprint gives it nationwide last-mile reach and geographic coverage of almost all counties and districts in China. JD's consumer proximity gives it an edge in delivering time-sensitive products like perishable groceries and pharmaceuticals -- two areas management prioritized during the coronavirus pandemic.

The company launched Mobile Fresh Basket to deliver fresh produce in over 100 cities during the pandemic, and expanded its JD health business by launching new Android and iOS versions of its app. JD's Health segment is now the biggest pharmacy in China and poised for continued growth, because it can take market share from traditional brick-and-mortar pharmacies over the long term.

JD's revenue is growing rapidly, with net revenue soaring 21% from 121.1 RMB to 146.2 RMB ($20.7 billion) in the first quarter and posting a 34% compound annual growth rate (CAGR) from 2015 to 2019.  

The takeaway

The retail sector is evolving, and the coronavirus pandemic may be hastening the transition into online retail. This creates a massive opportunity for first-party retailers like Walmart and to compete with third-party platforms that lack their massive physical footprints and logistics capacity. Both stocks look poised for bull runs over the long term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, and and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$132.60 (0.29%) $0.38, Inc. Stock Quote, Inc.
$57.98 (1.63%) $0.93, Inc. Stock Quote, Inc.
$143.18 (-0.26%) $0.37
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$94.20 (-0.60%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.