Best Stock to Buy Right Now: Amazon vs. Home Depot

If you're looking for a good place to invest your money in the consumer goods sector, you've probably considered investing in either Amazon (NASDAQ: AMZN) or Home Depot (NYSE: HD). While they have very different businesses, shares of both companies have accelerated over the past year. (Home Depot stock is up 33%, and Amazon has gained 38%, as of this writing, Nov. 19.)

Here's the case for both of these consumer goods juggernauts, and why one looks like the better stock to buy right now.

The case for Amazon

Amazon holds a commanding 40% of the U.S. e-commerce market, leaps and bounds ahead of fellow retail competitor Walmart's 7.4%. The company's latest quarter highlights its impressive position.

Amazon's North American sales popped 11% in the third quarter, which ended Sept. 30, to $95.5 billion. Investors wondering if the company can continue to fend off rivals need to look no further than Amazon's new launch of its ultra-cheap products through Amazon Haul. The mobile-only marketplace competes with the low-priced marketplaces Shein and Temu, and all prices are under $20.

Of course, there's far more to Amazon than just its retail sales. The company's cloud computing business, Amazon Web Services (AWS), is the leading cloud company, with 31% of the market. Cloud computing was already a fast-growing market, but it's being supercharged by artificial intelligence (AI). Goldman Sachs estimates cloud computing will grow into a $2 trillion market by 2030, thanks to AI.

AWS sales increased 19% in the third quarter to $27.5 billion. With AI fueling more investments in cloud computing, Amazon should continue to benefit.

The case for Home Depot

Home Depot is just coming off a solid third quarter, ended Oct. 27, where revenue and earnings beat Wall Street's expectations. Sales rose 6.6% to $40.2 billion, ahead of analysts' consensus estimates of $39.3 billion. Similarly, the company's diluted GAAP earnings per share of $3.67 outpaced the consensus estimate of $3.64.

The company is in a strong position in the home improvement space, with an estimated 28% of the market in 2023, compared to just 17% for Lowe's. Home Depot also has impressive margins: Its operating margin is 13.5%, with $5.4 billion in operating income.

Home Depot's management says there's pent-up demand for home renovations, which could boost the company's growth whenever it comes. Speaking about its customers' desire to work on projects, Home Depot CFO Richard McPhail told CNBC recently: "There is demand for remodeling, and they are putting it on hold until they see a more favorable financing environment. And so the demand is there; the question is when it's unlocked."

That's the current drawback for Home Depot. With mortgage rates and borrowing costs for home equity loans still elevated, Home Depot customers remain cautious about spending. If interest rates fall next year, it will likely spur a surge of renovations and home sales (both great for Home Depot), but it's not here just yet.

The verdict: Buy Amazon

Amazon's shares currently have a price-to-earnings ratio of 43, compared to 27 for Home Depot. That makes Home Depot technically cheaper right now than Amazon -- but that doesn't necessarily make it the better buy.

The Federal Reserve has already cut the federal funds rate twice over the past few months, and mortgage rates have actually increased. That's because mortgage rates aren't directly tied to the federal funds rate and are also influenced by bond yields, which have gone up, taking rates with them.

Even if more rate cuts come next year, it's not guaranteed to solve high borrowing costs. Home Depot needs consumers to feel comfortable spending on big home improvement projects again, and there's no telling when that will happen.

Meanwhile, Amazon is already benefiting from its e-commerce lead, and the demand for AI cloud computing is expanding the company's opportunities. All of these factors make the company's stock more attractive right now.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Home Depot, and Walmart. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.