E-commerce stocks: Next year’s biggest market champions?

There is always a bull market somewhere – and I think I found where the next one will emerge.

Throughout the year, the bull market has been centered on energy stocks. Many really smart investors believe that the bull market in energy stocks will persist in 2023 as well.

But here’s the problem with this thesis: energy stocks were the best performing stocks in 2021 and 2022. So betting on them being the big winners in 2023 as well would require them to be “three rounds” as best performing asset class. .

Energy actions rarely do. When they work well, they tend to be “two and under”. They enjoy two good years in a row, then hand over the leadership to another sector.

It is therefore very likely that in 2023, a new sector will take the lead. So… which sector will take off in 2023?

Here’s a thought: e-commerce stocks.

The fundamental thesis

E-commerce stocks have been on a roller coaster over the past few years, and it looks like the next step on that roller coaster is a rise much higher.

E-commerce stocks soared in 2020 and most of 2021 as the COVID-19 pandemic raged across the world. This has kept consumers indoors and forced the bulk of shopping to be done online.

Then, over the past 12 months, those same e-commerce stocks crashed. Pandemic-era restrictions eased and consumers pushed back on the “all-digital” narrative, going the extra mile to get to the store instead of shopping online.

Now, however, things have normalized.

As consumers, we’ve exhausted all that pent-up demand due to the pandemic shutdowns. We returned to the mall several times. And while it was fun, we realized why we gave it up in the first place: long lines, crowded stores, crowded parking lots, long commutes, and now sky-high gas prices to get to and from the store. come back.

We have therefore returned to our pre-pandemic habits and are shifting more of our purchases to the online channel. This change is happening right nowand this is causing a further widespread acceleration of growth at many online retailers.

Amazon (AMZN) recently announced that its e-commerce business saw revenue growth rates accelerate in the third quarter of 2022 for the first time since late 2020. Shopify (STORE), revenue growth rates reaccelerated this quarter for the first time since early 2021. Etsyit is (ETSY) revenue growth rates, meanwhile, have reaccelerated for two consecutive quarters – also for the first time since late 2020.

The e-commerce industry is making a comeback, and we think the comeback has legs.

The technical outlook is optimistic

Technical data on e-commerce stocks supports the fundamental thesis. E-commerce stocks have likely bottomed and are poised to reaccelerate.

More specifically, the Amplify Online Retail ETF (I BUY) has been around for more than five years. During this period, the ETF established two significant multi-year lows. The first occurred in December 2018 and the second in March 2020. Both lows occurred at levels within a few percentage points of each other.

About a month ago, the online retail ETF crashed to these levels after a multi-quarter crash. He hit rock bottom and has shown signs of life ever since.

Source: Bloomberg

In other words, e-commerce stocks have come full circle from a technical perspective. They have returned to levels at which these stocks have historically tended to bottom out after crashes. More than that, it looks like e-commerce stocks want to hit those levels again.

Therefore, we consider the technical outlook on e-commerce stocks quite bullish here.

E-commerce stocks are too cheap

The reacceleration in revenue growth we are seeing today in e-commerce businesses is bullish. The same goes for the technical setup. But frankly, both are anecdotal pieces of evidence in our bullish thesis on e-commerce stocks.

This thesis is mainly based on evaluation.

Simply put, e-commerce stocks are too cheap for their own good. E-commerce is still a secular growth industry that will continue to grow at a steady pace over the next few years. Yet e-commerce stocks are trading today at near-unprecedented valuation levels.

For example, shares of Amazon are trading at 1.9 times trailing sales, more than 40% below its 10-year average selling multiple and one of its lowest selling multiples in the world. last decade.

Meanwhile, Etsy stock is trading nearly 40% below its all-time average selling multiple. Soft (CHWY) the stock is about 50% below its all-time average sales multiple, and Wayfair (O) the stock is more than 80% below this multiple. All three stocks are trading today at historically low or near sell multiples.

Charts following the price-to-sales ratio of various e-commerce stocks

They trade as if e-commerce is out of fashion. But, if anything, the reacceleration in revenue growth we’re seeing across the industry today tells us that e-commerce is coming back into vogue.

This means that these stocks are poised to rise in 2023.

The Final Word on Ecommerce Stocks

Now is a fantastic time to buy stocks.

They are down from their highs and are trading at valuation levels low enough to justify significant upside potential. Simultaneously, enough signals have emerged from the market to say that this bear market is coming to an end.

Therefore, you have a bunch of assets with huge upside potential over the next 12 months and very limited downside risk over the next two to three months.

This is a great risk-reward setup. So I repeat: Today is a great day to be a stock buyer. We think 2023 could be a banner year for the stock market.

In this bumper year, we believe e-commerce stocks will be the big winners. But they will not be alone.

Find out the best stocks to buy for next year’s big rally.

As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.

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