- Consumer spending continues to trend upwards, with online retail stocks set to benefit.
- Amazon is the safest option, though with muted upside potential.
- Shopify's recovery continues to gather pace, and shares should rally through the holiday season.
- Etsy is a high-risk stock, though it brings with it the highest return potential.
Having endured a terrible 2021 that continued for much of 2022, it's starting to look like a solid low has been put in by online retail stocks, with a recovery rally imminent. Looking at the ProShares Online Retail (NYSE:ONLN), we can see the fall from grace it had following the pandemic run-up of 200%; as recently as June, it was still down 70% from those highs.
But since the monthly inflation readings have started to cool and belief has grown in the Fed's ability to deliver a soft landing, there's been a marked recovery pretty much across the board. The ETF is up 20% since March, having previously been up nearly twice that, and there's a clear uptrend being formed.
On the back of this and the broader stock market performance, there's a strong argument to be made that last year saw the bottom of consumer confidence, and the current outlook is starting to look brighter than it has in years. This can only be good for stocks, especially those with exposure to consumer spending, so as we head into the all-important holiday season, here are three online retailers worth adding to your watchlist.
1. Amazon.com Inc
First up is Amazon (NASDAQ:AMZN), arguably the world's biggest and best-known online retailer. Their shares are up 65% since last December's low, and there's plenty more where that came from. MarketBeat's analyst rating tool shows a consensus analyst price target of $160 for Amazon shares, which points to further upside in the region of 20% from current levels.
Last week, the team over at Wedbush Securities came out on the bullish side for the company, adding Amazon to its Best Ideas list on the back of what they called "stabilizing" growth in its e-commerce, advertising, and cloud computing revenue streams.
Of the three stocks in this list, Amazon is undoubtedly the most well-diversified, which helps explain its strong outperformance during last year's selloff and this year's rally. On the other hand, its upside potential might also be more limited, but for the more risk-averse investor, you won't find a more insulated online retailer.
2. Shopify Inc
Shares of Shopify (NYSE:SHOP) have been rallying even longer than Amazon, with their low being hit in October of last year. Since then, they've tacked on 150% in value with a consistent run of higher lows underpinning the rally, exactly the kind of pattern investors want to see. It's all the more important that momentum like this is evident in a stock that's recovering from what was at one point an 85% selloff.
It will be a while before Shopify is back at 2021 highs, but in the meantime, there's a ton of opportunity to be capitalized on by investors. They smashed analyst expectations in their Q2 earnings report earlier this month, helped in large part by the company's second-largest quarterly revenue print ever (marginally below last year's Q4 number). This bodes well for the coming holiday season, and we can see investors are continuing to buy into the recovery story.
Like Amazon, Wedbush Securities have also come out recently on the bullish side for Shopify, raising their rating to Outperform just last week. This should put paid to any concerns investors have about getting involved with a stock that's already seen triple-digit percentage gains this year.
3. Etsy Inc
Etsy (NASDAQ:ETSY) is the smallest of the three stocks in this list and has the least revenue diversification and the poorest share performance in recent months. However, the stock has arguably the highest upside potential. Its shares continue to trade near their post-pandemic lows, having sat out the broader industry recovery that has buoyed both Amazon and Shopify. Despite beating expectations in their Q2 report at the start of August, much work remains to be done to win back Wall Street's confidence.
Of immediate concern is the company's revenue, which has been trending down since the end of last year. This kind of slowing growth is anemic to investors who are already extra wary of non-profitable tech companies in an era of rising interest rates. So, what's the angle?
Well, if you have an appetite for risk, it's worth noting that Etsy shares are just starting to bounce off their long-term support line around $75. This level has been in play since 2019, and it's exactly where the Bears ran out of steam last year. If the company can get its revenue once again trending northwards in the coming months, Etsy's valuation could soon become too good to miss. This might be the perfect entry opportunity for investors looking to get in on the ground floor.