Growth stocks took a big hit in the market sell-off last year, and within this group, the sector that took one of the hardest hits was online retail (e-commerce) stocks. As the market inches toward recovery in 2023 and inflation concerns ease, investors who focus on purchasing stock in leading e-commerce brands could position their portfolios for above-average returns.
Part of the reason why this sector holds such potential is still in recovery mode. Another big reason is that global e-commerce spending is on track to top $6 trillion this year (up from $5.54 trillion in 2022), and eMarketer estimates it will grow to $7.4 trillion by 2025.
Given all that potential e-commerce growth, here are three stocks set to benefit that you might want to consider buying in October.
1. Apple
Apple (AAPL -0.35%) sees more of its total sales coming from what it sells on its Apple.com online store with each passing year. Last year, Apple.com-related revenue made up 15% of the business, according to Statista, up from about 10% in 2020.
Apple's installed base of devices has continued to hit new highs each year. This is fueling profitable sales of apps and subscriptions in the App Store. Over the last four years, Apple's trailing 12-month revenue increased by 48%, with operating profit up 74%.
Apple saw product sales weaken in recent quarters along with the global smartphone market. Wedbush analysts see pre-orders for the new iPhone 15 up by double-digit percentages over the previous model, so Apple should be well-positioned to resume growth over the next year.
Apple has built a profitable business around premium hardware and software. On a trailing basis, it generated $101 billion of free cash flow on $384 billion of revenue through the June quarter. That should fund more investment in artificial intelligence (AI) to grow interest in Apple's products. The stock should remain a solid investment for years to come.
2. PayPal
PayPal (PYPL 2.90%) is a leading online payments provider with 431 million active customer accounts. The company increased its revenue and earnings per share at an annualized rate of 17% and 12%, respectively, over the last 10 years. Its large base of customers positions the company well for more growth and returns to shareholders.
On the second-quarter earnings call, CEO Dan Schulman noted a disconnect between what management is seeing inside the business and the stock's recent performance. Indeed, revenue continued to grow this year. In the second quarter, PayPal processed 6.1 billion payment transactions, which includes the Venmo peer-to-peer payment app, for an increase of 10% over the year-ago quarter.
PayPal is also seeing customers use their accounts more. Transactions per active account increased 12% year over year in the second quarter. This suggests that customers are not finding viable alternatives to PayPal's feature-rich platform.
The stock appears oversold trading well off its previous peak. Given the negative sentiment surrounding the stock due to slowing revenue growth over the last few years, it may take a while for the market to come around. But PayPal's continued growth, especially on the bottom line where earnings per share are up 28% in the first half of 2023, should lead to solid returns off these lower share prices.
3. Amazon
Amazon (AMZN 3.43%) is a no-brainer e-commerce stock to buy right now. It's the leader in the space with $538 billion in annual sales that is supported by several lucrative and complementary businesses, including advertising services, subscriptions, third-party fulfillment fees, and cloud services.
The stock rallied this year mostly on the prospects for Amazon's cloud business as organizations invest in AI services. But with inflation starting to come down, Amazon is well positioned for accelerating sales growth over the next few years.
Amazon's online store has already posted improved growth this year. Moreover, it is seeing profits explode. Operating income in the North American segment hit $3.2 billion in the second quarter, reversing a loss in the same quarter in 2022.
The stock could have more room to run as management optimizes inventory placement at its fulfillment centers, which should lead to more profitable growth. Using Amazon's trailing cash from operations per share, the stock looks undervalued at a price multiple of 21. This is the lowest valuation in the last 10 years, making now a great time to buy shares.
