Banking

Five E-Commerce Plays Near Buy Points

Amazon stock and Shopify (SHOP) lead this weekend’s watch list of five e-commerce stock in or close to buy range as the group, which has napped as the bull market raced ahead, shows signs of waking up. In the case of Amazon (AMZN), it’s been a year-long slumber. SHOP stock has moved sideways since mid-February.




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Mercado Libre (MELI) and Etsy (ETSY) are making a run at highs set in January and March. Social media giant Facebook (FB), a stock market leader the past six months, is the oddball in the group, but rapid adoption of its e-commerce functionality is a key part of the story.

MELI stock is part of the elite IBD Leaderboard portfolio. SwingTrader, which applies IBD’s CAN SLIM investing system to take advantage of short-term trends, added SHOP stock on Aug. 24.

E-commerce stocks, after leading the way early in the pandemic, have taken a back seat this year as vaccines enabled a rebound in service-sector activity, along with in-store shopping. Now that picture is shifting. The surge in Covid cases and hospitalizations tied to the delta variant have slowed the recovery in dining out and travel. Meanwhile, expectations have come down for e-commerce growth, most notably for Amazon stock.

Yet while the growth of e-commerce has slowed after last year’s whirlwind, there’s still plenty of room for displacing trips to the store. Friday’s job report suggests that long-term trend may be reestablishing itself. In August, retailers shed 28,500 jobs, while the economy added 40,000 couriers and warehouse workers.

Amazon Stock

Amazon’s revenue growth has come down from the stratosphere, after the initial Covid spike. Year-over-year growth slipped from 44% in Q4 and Q1 to 27% in Q2. Amazon has guided for Q3 growth of 10%-16.5% vs. the 23.5% growth analysts were expecting.

The e-commerce giant blew past Q2 earnings estimates on July 29, fueled by Amazon Web Services and advertising gains. Yet the soft revenue outlook sent Amazon stock tumbling 7.6% the next day. That derailed AMZN stock’s July 6 breakout from a short cup-with-handle base. That was the third straight breakout for Amazon stock that failed, dating back to August 2020.

Yet now that expectations have been re-set, there’s reason to hope the next breakout will be more enduring.

Amazon stock is currently 8% below a 3773.18 buy point, 10 cents above its July 13 high, in an 8-week consolidation. However, Amazon stock has now retaken its 50-day moving average, while retracing just over half of its drawdown from the peak. A move back above the Sept. 1 high of 3527 could serve as an early entry point.

Amazon has a mediocre 54 Relative Strength rating from IBD, meaning it has outperformed just 54% of all stocks over the past 12 months.

Shopify Stock

Shopify, which manages everything for online merchants, from setting up their e-commerce websites, to payments and fulfillment, also has seen explosive revenue growth moderate — but from near triple digits for several quarters running to a still-lofty 57% in Q2.

The company signed up 85,000 new merchants in Q2, down from 145,000 the prior quarter. Gross merchandise volume rose 40% to $42.2 billion, Shopify reported on July 28.

On Aug. 24, Shopify and TikTok revealed progress on their partnership announced last year. TikTok videos can include product tags that link directly to merchant websites. Social commerce is among the fastest growing channels for its merchants, Shopify said. The company also is working with Facebook.

SHOP stock is about 6% below a 1650.10 buy point from a six-week shallow cup base next to a much-deeper consolidation. according to a MarketSmith analysis. However, 1562.10 could serve as an early entry point. That’s the high from Aug. 24, the day of the TikTok news, which saw Shopify retake its 50-day line.

SHOP stock then etched out a handle-like pattern, though the cup was too short for an official handle. SHOP stock briefly rose past that entry point on Thursday.

SHOP stock has an 89 Relative Strength rating from IBD. Its relative strength line that tracks its performance vs. the S&P 500 has been moving sideways the past two months but is off the peaks hit in February and July.

FB Stock

FB stock has been the recent standout among this weekend’s watch list stocks. FB stock broke out from a 31-week consolidation on April 5, clearing a 304.77 buy point, and hasn’t looked back.

In recent days, FB stock has been flirting with a 377.65 buy point from a short flat base. After moving into a buy zone on Monday, FB stock pulled just below it on Thursday.

Despite its big run, FB stock hasn’t gotten carried away, staying close to its 50-day line, with several tests of the key technical signpost along the way. The latest test came around 351 on Aug. 19, the day the FTC refiled its antitrust suit against Facebook.

FB stock has been propelled by strong earnings, as a 47% jump in ad prices fueled 56% revenue growth in Q2. But there’s been a nagging worry over FB stock all year, tied to Apple’s privacy change. Facebook now has to show a prompt when its app is downloaded via the App Store, letting users opt into or opt out of tracking across third-party web sites.

That’s why Facebook’s e-commerce push has become so important. If merchants conduct their e-commerce transactions via Facebook or Instagram, then Facebook will have the data to keep its ads relevant.

The Facebook Shops digital mall, first announced in May 2020, now has about 1.2 million active shops and more than 300 million shoppers, or at least browsers, per month, the company said on June 22.

MELI Stock

MELI stock, Latin America’s largest e-commerce company, has yet to see much of a slowdown. That’s partly because e-commerce hadn’t disrupted nearly as much consumption in its key markets of Brazil, Argentina and Mexico, and partly because Covid has held a tighter grip there.

As of April, Mercado Libre’s 668 million monthly visits within Latin America trounced Amazon’s 169 million, according to researcher Statista. In addition to providing an e-commerce marketplace for buyers and sellers, MELI stock provides e-commerce tools and digital wallets.

MELI stock crested an 1899.43 buy point from a 31-week cup-with-handle base this week, closing the week at 1946.01, well within buy range.

MELI stock has a 91 Relative Strength rating.

Etsy Stock

Etsy, the online marketplace for unique and often handcrafted merchandise, saw sales growth quadruple to about 130% at the start of the pandemic and kept up that pace until Q2, when the prior-year comparison became tougher to beat. Sales growth slowed to 23% in Q2, and part of that came from acquisitions.

Still, Etsy continues to be aggressive. Recent acquisitions have included Elo7, a peer-to-peer marketplace in Brazil, and Depop, an apparel site favored by Gen Z.

Etsy stock remains about 12% below an official 251.96 buy point from a 27-week consolidation. Still, 211.92, 10 cents above the July 23 high, looks like an actionable entry point. Etsy stock cleared that level on Aug. 26 and continued to drift higher this week, closing at 220.38.

Etsy stock has a 90 Relative Strength rating, and its relative strength line appears to have broken out of a downtrend.

Please follow Jed Graham on Twitter at @IBD_JGraham for coverage of economic policy and financial markets.

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