Amazon Stock vs. Walmart Stock: Which Is the Better Buy Now?

Few retailers have the distribution strength, e-commerce platform, and brand to effectively compete against Amazon.com in any broad way—except, perhaps, Walmart. Walmart has the cost advantages, scale, and e-commerce capabilities to keep Amazon on its toes.

Walmart warned in late July that profits will take a hit in the second half of 2022 because of inflation and changes in consumer spending. Meanwhile, Amazon provided a more encouraging revenue outlook for the third quarter. Does that mean it’s time to buy Amazon stock? Or is it time to buy Walmart stock?

To determine which is the better stock to buy now, let’s see how each stacked up on a series of Morningstar’s proprietary metrics as of July 31, 2022:

Amazon Stock AMZN

• Price/Fair Value: 0.70
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Morningstar Capital Allocation Rating: Exemplary

Walmart Stock WMT

• Price/Fair Value: 0.96
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Morningstar Capital Allocation Rating: Standard

Who wins this stock-versus-stock matchup? That depends on which Morningstar metrics matter most to an investor. Let’s take a deeper dive into four of them.

Price/Fair Value Winner: Amazon Stock

Morningstar’s analysts calculate a fair value estimate for each stock they cover. The fair value estimate represents the intrinsic value of a stock, based on how much cash we think the company can generate in the future. A stock’s price/fair value is simply its current market price divided by the fair value estimate. A stock trading below 1.0 is undervalued; a stock trading around 1.0 is fairly valued; and a stock trading above 1.0 is overvalued.

As of this writing, we think Amazon’s stock is about 30% undervalued, while Walmart’s stock is just 4% undervalued. The winner from a price perspective is Amazon stock, which is trading at a more attractive price today.

Watch: The Morningstar Fair Value Estimate

Uncertainty Winner: Walmart Stock

The Morningstar Uncertainty Rating represents the predictability of a company’s future cash flows and, therefore, the level of certainty we have in our fair value estimate of a given company. Companies that enjoy sales predictability, modest operating and financial leverage, and limited exposure to contingent events carry lower Uncertainty Ratings; those with less-predictable sales, significant leverage, and significant exposure to contingent events carry higher Uncertainty Ratings.

Our analysts think Walmart’s cash flow uncertainty is Medium, while Amazon’s uncertainty is High. Walmart stock wins for its lower Uncertainty Rating because we’re more confident in our fair value estimate of that stock.

Economic Moat Winner: Tie

The Morningstar Economic Moat Rating represents a company’s maintainable competitive advantage. A company with an economic moat can fend off competition and earn high returns on capital for many years to come. A company whose competitive advantages we expect to last more than 20 years has a wide moat, one that can fend off its rivals for 10 years has a narrow moat, while a firm with either no advantage or one that we think will quickly dissipate has no moat.

Our analysts think both Amazon and Walmart have carved out wide economic moats. It’s a tie.

Watch: The Morningstar Economic Moat Rating

Capital Allocation Winner: Amazon Stock

The Morningstar Capital Allocation Rating represents our assessment of how well a company manages its balance sheet, investments, and shareholder distributions. Analysts assign each company one of three ratings—Exemplary, Standard, or Poor—based on their assessments of how well a management team provides shareholder returns. Adept corporate managers can make a good company even better.

Amazon earns an Exemplary capital allocation rating, while Walmart earns a Standard rating. Amazon stock for the win here.

Watch: Introducing the Morningstar Capital Allocation Rating

Which Is the Best Stock to Buy Today?

At the end of the day, the “winner” of any stock-versus-stock matchup from Morningstar’s perspective is the stock that’s trading at the largest discount to our fair value estimate after being adjusted for uncertainty. The Morningstar Rating for stocks encapsulates just that. Stocks rated 4 and 5 stars are undervalued after being adjusted for uncertainty, stocks rated 3 stars are fairly valued, and stocks rated 1 or 2 stars are overvalued after being adjusted for uncertainty.

Amazon stock earns a 4-star rating as of this writing, while Walmart stock earns a 3-star rating. Amazon is the better stock to buy today from Morningstar’s perspective.

Watch: The Morningstar Rating for Stocks

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