Amazon-Proof Retail Stock: Best Buy

Amazon.com (symbol AMZN) is projected to account for one-half of all internet-based U.S. retail sales by 2021, according to brokerage firm Needham & Co., up from about one-third of sales in 2016. The threat to competitors in the retail space has become so dire that a "Death by Amazon” index that tracks the stock prices of 54 retailers sits near a four-year low, according to research firm Bespoke Investment Group, which compiles the index.

Yet, there are a few big retailers that are finding ways to thrive despite the Amazon onslaught. Electronics chain Best Buy (BBY) is one of them. Here's why its stores and its stock should stand up to competition from Amazon. (Share prices, returns and other data are as of April 25.)

A few years ago, Best Buy was written off as a company that “didn’t need to exist” in the age of e-commerce, says investment research firm Bespoke. But a new CEO, who took over in 2012, made some major changes that revived both the business and the stock.

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The company decided to match Amazon’s prices and those of other big box retailers, says Bespoke, and it started highlighting interactive experiences in its stores, luring shoppers to browse and try out stereos, TVs and other electronics. Best Buy also made a big push into services with its “Geek Squad” for technical support and Magnolia home-theater design studios.

The payoff: Sales and profits have been rising steadily, and the stock has gained 63.1% in the past year, beating Amazon’s 45% return. “Best Buy is a great example of how to compete in the age of Amazon,” says Bespoke.

Analysts at Bank of America Merrill Lynch agree. The investment firm recently upgraded the stock from a “neutral” to a “buy” rating. Strong online sales at Bestbuy.com should help lift revenues, the firm says, as will a greater focus on services with attractive profit margins, such as in-home advisers and extended warranties. A new generation of smartphones will also bring in more customers. Over the next 12 months, Merrill sees the shares hitting $58, a 12% return that could top 14% when you include the stock’s 2.6% dividend yield.

Best Buy by the Numbers

• Share price: $51.77
• Market value: $16 billion
• Price-earnings ratio: 14
• Estimated 12-month profit growth: 3.1%
• Dividend yield: 2.6%

Check out five other retailers that can stand up to Amazon.