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These three retail stocks are known for their low prices, but what do their shares say about them?

U.S. retail is a multi-trillion dollar industry and a pillar of the American economy. Amazon (AMZN -2.33%), Walmart (WMT -0.25%)And Costco Wholesale (COST -0.07%) are industry giants and world-class stocks that have all outperformed the broader stock market over the years.

These companies generate a whopping $1.5 trillion in annual revenue. Their size gives them cost advantages that allow them to dominate over smaller competitors, and they are expected to continue to grow over the next few decades.

However, their stocks are not all the same. Although all three are blue chip stocks, their different price tags give investors a lot to think about. One of these stocks is a buy, another is a hold, and the other is a sell. Scroll down to see which is which.

Buy: An e-commerce giant is running at full speed

Amazon has become the dominant e-commerce retailer in the United States, with the company commanding a whopping 37.6% market share, miles ahead of second-place Walmart. No other company has the supply chain capabilities to deliver such a variety of products to consumers quickly, creating an unparalleled customer experience. Its subscription service, Amazon Prime, only reinforces the value proposition with streaming and other perks.

But Amazon’s appeal isn’t just in e-commerce; the company’s cloud platform is also a global leader. Amazon Web Services is a pillar of the digital economy and a cash cow that generates huge profits. Management invests those profits throughout the company to create future growth opportunities. There is arguably no company that expands as aggressively into new and existing markets as Amazon, meaning there is no limit to its long-term investment potential.

Despite its millionaire success story, Amazon’s stock is still pretty cheap today. Amazon’s massive investments in growth mask the fact that the stock is at its lowest level in a decade when comparing operating cash flow to share price. Analysts expect earnings to grow nearly 30% annually over the next few years. Don’t hesitate to buy shares and hold them for the long term.

Hold: America’s largest retailer could shine in a recession

Walmart is America’s largest retailer; around 90% of the country’s population lives within a short drive of a store. The company is known for its low prices and is known for using its massive size and negotiating power to achieve this. Walmart’s store network and ability to reach shoppers have helped it grow. The company has expanded into other retail categories, including big-box stores, through Sam’s Club and e-commerce.

Unfortunately, Walmart’s stock is not as valuable as its products. Today, shares trade at a P/E ratio of 28. That’s a premium to the broader stock market, likely due to Walmart’s stellar reputation on Wall Street. The company has paid and increased dividends for 51 consecutive years, and a fortress-like balance sheet backs it up. Additionally, Walmart should thrive in a recession as consumers switch to Walmart from competitors due to cost.

Analysts expect Walmart to continue growing for years to come, but estimates put long-term earnings growth at just over 7% on average. It’s hard to justify buying a stock at this valuation when you’re only getting single-digit earnings growth. It might not be a bad idea to hold onto the shares because of Walmart’s excellent fundamentals, but it’s probably better not to make any purchases for now.

Selling: This popular wholesaler is incredibly expensive

This next paragraph is almost painful to write, but the facts cannot be ignored. Look, Costco Wholesale is a truly outstanding company. Its enormous size allows it to offer products at great prices, and its famous bait-and-switch deals, such as its $1.50 hot dog meal, have created a cult-like following and loyalty among customers. The membership fee that customers pay to shop at Costco is genius and its primary source of profit.

Despite the fantastic business, however, Costco stock has become so expensive that it’s worth thinking about selling some shares. The stock trades at a whopping P/E ratio of over 52, but analysts expect earnings to grow at just 9.5% annually over the long term. Given Costco’s still-growing store footprint and ability to increase membership fees, this seems doable.

Nearly 10% growth is nothing to sneeze at, unless you’re paying 50 times earnings for it. The stock price offers no margin of safety, which is a dangerous situation when a recession hits and buyers start pulling out their wallets. Rather than taking the risk, consider selling and getting back in when the price is more reasonable.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope does not own any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.

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