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Better Buy: Amazon vs. Comcast

By Rick Munarriz – Jul 16, 2020 at 9:00AM

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There are a lot of chess pieces in this match between the leading online retailer and the cable TV giant, but the winner of this game might surprise you.

There's probably more (AMZN 4.50%) and Comcast (CMCSA 2.08%) in your life than you'd care to admit. It may seem fairly obvious when Amazon is delivering something to you -- physically or digitally. However, you're interacting with Amazon's product lines when you approach a Ring doorbell, buy organic groceries at your local Whole Foods, stream an Audible audiobook, or check out your favorite gamers on Twitch. There's also a good chance that you routinely find yourself on apps and platforms hosted by Amazon's AWS.

Comcast also tosses a wide net. There's its industry-leading broadband and cable TV properties under Xfinity and its namesake banner. Through NBCUniversal Comcast also owns the motion picture studios behind several iconic franchises including Jurassic Park, Minions, and The Fast and the Furious. Comcast also owns NBC and its new Peacock streaming service. We also can't forget about the Universal Studios theme parks.

Amazon and Comcast cover a lot of ground, but which one belongs in your portfolio? Let's take a closer look to see which market giant is the better buy right now.

A woman on a coach channel surfing.

Image source: Getty Images.

Building empires

Comcast was posting heady top-line growth until late last year, but it wasn't organic. The $39 billion deal to boost its stake in European pay-TV giant Sky closed in early October of 2018. Things have slowed down considerably since lapping the acquisition's anniversary. Comcast revenue rose a mere 2% in the final quarter of last year, declining slightly with a 0.9% dip in the first quarter. 

There are a few things weighing on Comcast's growth these days, and things naturally only got worse with the pandemic during the second quarter. With movie theaters closed and its theme parks largely shuttered analysts see a 12% decline in revenue when it reports financial results in two weeks. Comcast's flagship cable television and broadband connectivity should prove resilient, but there will be too many headwinds to return to top-line growth.

Amazon has been far more resilient. Net sales rose 26% through the first three months of this year, and it continues to be a major beneficiary of the shelter-in-place phase of the COVID-19 crisis. It sees 18% to 28% growth for the recently concluded second quarter. 

Amazon isn't going to lose the growth battle, but Comcast does have the inside track for value and income investors. Look beyond this year's challenging climate and you'll see Comcast trading at a reasonable 14 times next year's projected earnings. Amazon is fetching 80 times next year's bottom-line forecast, but investors aren't buying the world's leading online retailer for its earnings growth. 

Comcast also sweetens the pot with its 2.2% yield. Amazon is clearly the all-weather darling these days, but with its stock now the third one to top $1.5 trillion in market capitalization it's not sneaking up on anyone anymore. Comcast isn't perfect. Its cable TV business is going to fade over time. Entertainment is going through a hazy migration. However, its strong internet connectivity component will keep the cash flow and dividend hikes coming. You don't want to bet against Amazon -- and I won't, as both stocks should beat the market from here -- but Comcast gets the prize for the better buy right now. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Comcast 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.

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Stocks Mentioned, Inc. Stock Quote, Inc.
$121.09 (4.50%) $5.21
Comcast Corporation Stock Quote
Comcast Corporation
$30.99 (2.08%) $0.63

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