Gearing Up for Holiday Season: Amazon Versus Walmart ETFs

Heading into the crucial holiday season, consumer stocks and retailers have been in the spotlight with two major stocks — Amazon AMZN and Walmart WMT — on investors’ radar.

Both stocks are components of Dow Jones Industrial Average, which hit multiple highs lately. Walmart has outperformed Amazon so far this year, having gained 29.1% versus the 16.7% gain for the latter. This is because the mega retailer seems to be gaining foothold against the online behemoth as revealed by the latest data from First Insight (read: 4 Ways to Play Dow Jones With ETFs).

The frequency of people buying items on Amazon six times or more per month has dropped to 40% this year from 80% in 2017. About 55% have preferred to shop at Walmart this year versus Amazon compared to 47% a year earlier. The percentage of people who favor Amazon has dropped to 40% from about 53% in 2018.

What’s Happening?

Amazon came up with dismal third-quarter 2019 results last month. Though revenues came in better than the Zacks Consensus Estimate, it missed the estimate on earnings. Additionally, earnings fell for the first time in more than two years and the company forecast a further drop in the holiday shopping season. Increased spending on one-day delivery and other initiatives are taking a toll on the company’s profitability and will continue to do so. This is especially true as Amazon has announced one-day delivery on over 10 million items for Prime members this holiday season. The online giant kicked off with “special, early holiday deals” in early November.

On the other hand, Walmart came up with earnings beat in its third-quarter fiscal 2020 results but fell shy of the consensus mark for revenues. Additionally, the retailer raised the full-year forecast. The big-box retailer kicked off a shorter holiday shopping season in late October by launching online deals earlier than ever and offering a free, next-day delivery for the first time (read: Walmart Beats on Earnings, Raises View: ETFs in Focus).

Amazon Versus Wal-Mart

Though Amazon has a top Growth Score of A, meaning that it is primed for strong growth, Walmart looks cheaper at the current levels as it is currently trading at a P/E ratio of 23.95 versus 84.79 for Amazon. Additionally, WMT carries a Zacks Rank #2 (Buy) and belongs to a favorable Zacks industry (placed at the top 41% of 250+ industries). Earnings and revenues of Walmart are expected to grow 1.08% and 2.35%, respectively, for the current year, higher than the industry average of 0.54% for earnings and 0.49% for revenues. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Walmart has moved up by 4 cents in a month for the current year. Analysts raising estimates after earnings — with the most up-to-date information possible — is a pretty good indicator for the stock.  

Meanwhile, Amazon currently has a Zacks Rank #3 (Hold) and belongs to a favorable Zacks industry (placed at the top 34%). Earnings are estimated to grow 1.86%, much lower than the average industry growth of 4.56% while revenues are expected to increase 19.85% compared to the industry’s average growth of 3.55%. The stock saw negative earnings estimate revision of $3.43 for the current year over the past 30 days.

ETFs to Bet On

Based on the above discussion, Wal-Mart seems to be taking some sheen away from the online giant heading into the crucial holiday season. As such, investors could bet on WMT in a basket form with Consumer Staples Select Sector SPDR Fund XLP, Fidelity MSCI Consumer Staples Index ETF FSTA and Vanguard Consumer Staples ETF VDC. Wal-Mart accounts for 9% share in XLP, 8.4% share in FSTA and 8% share in VDC. These funds have gained more than 1% each over the past one month. The three funds have a Zacks ETF Rank #1 (Strong Buy) (read: Here's Why Consumer Staples ETFs Are Rising This Year).

Meanwhile, investors could bet on Amazon with the help of ProShares Online Retail ETF ONLN, Fidelity MSCI Consumer Discretionary Index ETF FDIS and Consumer Discretionary Select Sector SPDR Fund XLY. AMZN occupies the top position in these three ETFs with 24%, 23.2% and 21.8% share, respectively. ONLN, FDIS and XLY have shed 0.8%, 0.1% and 0.7%, respectively, in a month. FDIS has a Zacks ETF Rank #3 while XLY carries a Zacks ETF Rank #2.

Investors seeking to invest in both companies at the same time could look at VanEck Vectors Retail ETF RTH and iShares US Consumer Services ETF IYC. Amazon and Wal-Mart are the top and third firms in the RTH portfolio, accounting for 19.6% and 9.1% of assets, respectively. Meanwhile, Amazon occupies the top position at 9.5% and WMT takes the fourth spot at 4.6% in IYC. RTH and IYC are up 2.5% and 1.6%, respectively, in a month. Both ETFs have a Zacks Rank #3.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
 
Consumer Staples Select Sector SPDR Fund (XLP): ETF Research Reports
 
VanEck Vectors Retail ETF (RTH): ETF Research Reports
 
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
 
Fidelity MSCI Consumer Staples Index ETF (FSTA): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR Fund (XLY): ETF Research Reports
 
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
ProShares Online Retail ETF (ONLN): ETF Research Reports
 
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