E-commerce is poised to continue to boom, according to Morgan Stanley, which forecasts that the industry will be worth $5 trillion by 2027, CNBC reports.
As online businesses continue to streamline their operations, that will produce an 8% compound annual growth rate over the next five years, up from $3.4 trillion in 2020, Morgan Stanley says.
“We largely saw a focus on profitability over growth emerge through 2022,” Morgan Stanley analysts wrote in a recent report. “We see a more rational investment and customer acquisition stance supporting our case around marketplace monetization and profitable growth potential.”
Of eight overweight-rated stocks that Morgan Stanley analysts named in their report, here are their three top picks:
While Amazon (AMZN)’s market share of U.S. e-commerce is 37%, it only accounts for 9% of U.S. retail sales—giving it lots of headroom for growth as consumers continue to shift their spending online, Morgan Stanley says.
“When it comes to core consumer offerings—depth of inventory, guaranteed speed of shipping, incremental offerings beyond eCommerce—and overall volume of business, Amazon continues to lead peers,” the investment bank said.
Morgan Stanley is particularly enthusiastic about Amazon’s cloud services, AWS, which it says it as an “inflection point” and expects to grow 19% in 2024.
“Amazon’s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest.”
Morgan pins a price target of $150 on Amazon, which would mean a 42% upside from Friday’s closing price of $105.66.
Alibaba (BABA) is poised to benefit from a “consumption recovery” and easing regulations in China, Morgan Stanley says, with its analysts noting:
“Valuation remains attractive. At current levels, we think the stock underrepresents the value of cloud, other business segments and investments. Strong cash flow-generating capabilities and continued share buyback could also provide downside support.
“For the past 1-2 years, Alibaba has been in focus, so we think it could outperform other Chinese internet stocks as the [regulatory] environment eases,” the analysts added.
Morgan Stanley has a $150 price target on Alibaba, which would imply an 80% upside from its $83.22 closing price on Friday.
Online payments firm MercadoLibre (MELI) is the leading eCommerce marketplace and financial technology provider in Latin America, where Morgan Stanley foresees further “multiyear eCommerce penetration opportunity.”
Calling MercadoLibre a fintech leader, Morgan Stanley analysts “see the company well positioned to capture the secular growth opportunities on both fronts.”
They give MELI a $1,770 price target, which would mean a 42% potential upside from its $1,243.59 closing price Friday.
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