I think that investing in UK and US e-commerce shares is one of the hottest games in town.
Of course a lumpy economic recovery could damage projected profits growth at such stocks. And this could cause equities like online retailers, packaging manufacturers, software companies and warehouse service providers to fall in value. But over the long term, I think shares involved in the sphere of online shopping will make investors big returns.
A US e-commerce share
I recently explained why buying UK shares like FTSE 100 banking colossus HSBC could reap huge rewards. Why? I think it’s a great play on China, a country whose economy many expect to bounce back strongly from 2021 onwards. Take the World Bank for example. It reckons the Asian powerhouse will enjoy GDP growth of 7.9% this year, the fastest rate of growth anywhere in the world. Another 5.2% increase is forecast for 2022 too.
Ultra-cyclical shares like HSBC aren’t the only great way to make big returns from China, in my opinion. I’d invest in US-listed share Alibaba (NYSE: BABA) to generate big money from the soaring e-commerce sector there. According to IBISWorld, the Chinese online shopping segment rose at an annualised rate of 22.5% between 2015 and 2020. The impact of Covid-19 lockdowns over the past year and its impact on shopper behaviour has boosted the long-term outlook for e-tail too.
Pros vs cons
Alibaba is an e-commerce goliath in China and the surrounding areas. But it is more than just a peddler of goods. It also has its finger in other fast-growing industries like cloud computing and digital payments. In 2020, the company served a staggering 779m customers. And in the three months to December, revenues shot 37% higher year-on-year.
Of course, buying Alibaba shares isn’t without its share of risk. Firstly, the outbreak of fresh trade wars between the US and China threatens to slow long-term economic growth inside the Asian economy. It also means that higher price tags might be slapped on products across Alibaba’s sites, a surefire way to slow consumer spending. There’s also the not-inconsiderable problem of the retailer being investigated by the Chinese government on competition grounds. Naturally this could have significant implications for future profits growth.
That said, I think that the US share is still an attractive investment today. City analysts reckon earnings at Alibaba will rise 12% in 2021, following on from the predicted 76% bottom-line rise for last year. This leaves the company trading on a forward price-to-earnings (P/E) ratio of around 29 times.
A word of warning, however. Actual earnings can shoot past broker forecasts but they can also fall short. The Chinese e-tailer might trade at a sizeable discount to the broader online commerce sector (the forward average for e-tailers sits above 50 times). But it could still sink in price if trading conditions show signs of worsening or that Chinese monopoly investigation comes back to bite it.
