Best Stock to Buy Right Now: Costco vs. Amazon


The global retail market generated $27 trillion in 2022 and is expected to reach $30 trillion this year, according to data from Statista. The industry is vast and includes everything from groceries to consumer electronics to e-commerce and much more. So it is not a bad idea to invest in the space for the long term and benefit from its gradual development.

Although it may be tempting to invest in the industry through a market leader like Walmartit is worth looking at companies with a greater international reach to potentially benefit from the market's global footprint.

Costco (COST -0.05%) And Amazon (AMZN -0.68%) are attractive options. Both are present in more than a dozen countries and continue to expand. Costco's unique wholesale business model has successfully crossed dozens of cultures and regions, winning over consumers with its low prices and subscription-based model.

Meanwhile, Amazon has become a household name thanks to the popularity of its online site and the many services included in its annual Prime membership.

So let's take a closer look at these companies and determine whether Costco or Amazon are the best stocks to buy in February.

Costco

Costco has come a long way since its founding 40 years ago. The retail giant now has 874 locations across 14 countries. The bulk of its stores are in the United States, where the company ranks third among the country's 100 largest retailers (behind only Walmart and Amazon).

However, Costco's shares have significantly outperformed those of their American rivals.

Data by Y Charts

This chart shows the long-term value of Costco shares, which have generated growth more than double that of major U.S. retailers since 2019. Costco's annual revenue and operating profit have soared 59% and 71%, respectively, during the same period. while free cash flow soared 162%.

The company is on a promising growth trajectory that isn't expected to slow down anytime soon, with plans to open 31 new locations in 2024 after opening 23 last year.

Additionally, the annual Costco membership has been instrumental in its success. In general, product sales do not generate much profit for many retailers. However, the company seemed to solve this problem with its annual subscription.

In fiscal 2023, Costco made more than $6 billion in profit, with member contributions accounting for 73%. Along with a 90% subscription renewal rate, the company will likely continue to enjoy consistent gains for years to come.

Amazon

While Costco dominates wholesale grocery shopping, Amazon is the biggest name in e-commerce. The retail giant's success in the sector has allowed it to become the fourth most valuable company in the world, a place it recently reached after its market capitalization surpassed Alphabetit's last week.

Amazon shares have climbed 11% since February 1, when the company reported results for its fourth quarter of 2023. During the quarter, revenue climbed 14% year over year to $170 billion. of dollars, beating Wall Street estimates by nearly $4 billion.

Over the past year, the company has seen impressive growth in its e-commerce segments. Macroeconomic headwinds have hit Amazon's retail business hard in 2022, prompting it to introduce a series of cost-cutting measures. And the company has more than made up for its temporary slowdown.

The improvements are most evident in its North American segment, which reported an operating profit of more than $6 billion in the fourth quarter of 2023, a massive increase from the $240 million in losses recorded during the quarter. of the previous year.

Meanwhile, Amazon's free cash flow increased 904% year-over-year to $32 billion. Along with heavy investments in artificial intelligence through its Amazon Web Services cloud platform, the company has exciting prospects.

Are Costco or Amazon the best stocks to buy right now?

Costco and Amazon hold powerful positions in retail, and both could prove to be assets to any portfolio in the long term. However, the chart below indicates that Amazon may have more room to grow over the next couple of years.

Data by Y Charts

This chart shows that Costco's earnings could reach $18 per share over the next two fiscal years, while Amazon's earnings are expected to reach just under $7 per share. Multiplying these numbers by the companies' forward price-to-earnings ratios (45 for Costco and 40 for Amazon) yields a stock price of $810 for Costco and $272 for Amazon.

Based on their current positions, these projections would see Costco's shares rise 14% by fiscal 2026, while Amazon's shares rise 58%.

Therefore, Amazon is an obvious choice if the choice is between these two values. The company is crushing it in e-commerce and is home to a very lucrative cloud business that could make it one of the best growth stocks right now.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon and Costco Wholesale. The Motley Fool has a disclosure policy.



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