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Which Three Retail Stocks Are Positioned for Big Gains?

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Consumer austerity isn't hitting all retailers equally. Amazon, eBay, and Home Depot are poised to benefit as Americans open their wallets.

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Buyers feel their online payments on the website are secure whether the goods they're buying are sold directly by Amazon or by third-party sellers who simply use the company's website and payments system to market their products.

The company's low-cost distribution platform, which includes advanced inventory management systems and a network of warehouses, conveys a major cost advantage over traditional retailers. As the share of retail sales conducted online continues to jump in coming years, look for Amazon to be a major beneficiary.

Perhaps the most important near-term growth driver for Amazon is its digital media business and the Kindle Fire tablet computer. The company recently introduced four new versions of the tablet that will be available in time for the 2012 holiday season, including a 7-inch Fire priced at $159 and three high-definition ("HD") Fire models priced at $199 to $499.

While Amazon is tight-lipped about the manufacturing cost of the Fire, most believe the company prices the units at close to cost and makes its profits by selling to consumers digital media delivered to the tablet.

Amazon has been particularly aggressive in expanding the video content it conveys to Amazon Prime subscribers via the Kindle. Most recently, the online giant inked a deal with pay television station Epix to offer the latter's titles, including content produced by Viacom (NYSE:VIA) and its subsidiary Paramount Pictures, as well as Lions Gate Entertainment (NYSE:LGF) and Metro-Goldwyn-Mayer. That deal brings Amazon's library of video titles to over 25,000.

Trading at 2.2 times sales and 65 times 2013 earnings estimates, Amazon.com is not a cheap stock but that valuation is justified by its growing dominance of the online retailing industry.

eBay's (NASDAQ:EBAY) eponymous auction website allows users to buy and sell goods over the Internet either through a competitive auction process or for a pre-set price. In addition, the company also owns ticket re-seller StubHub.com, Half.com, and a number of other online properties. These websites combined have over 100 million users and account for about two-thirds of operating income.

However, while eBay's e-tailing websites will benefit from the continuing shift in favor of online sales, a stronger growth prospect for eBay is its PayPal payments division. PayPal allows retailers to set up an account and process credit and debit card charges often in a matter of minutes. The system also handles sensitive customer credit card data on customers' behalf.
No positions in stocks mentioned.
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