3 Retail Stocks We Won't Buy (Hint: Wal-Mart Isn't One)

By Markets Fool.com

The retail industry has produced some of the greatest winners in modern stock market history, with businesses such as Wal-Mart helping early investors earn fortunes along the way. But with the staggering growth of e-commerce, the industry is in a state of upheaval, with the many of the traditional brick-and-mortar titans of the past losing share to disruptive upstarts and new industry leaders like Amazon.com .

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New fortunes will be made by those who invest in the winners, while investors who own shares in the losers could experience sharp losses. With that in mind, we asked three Motley Fool contributors what retail stocks they would not buy today. Their answers? Sears Holdings Corporation , Best Buy , and even the beloved-by-many Target . Read on to see why.

Source: Sears.

(Sears): I won't be buying Sears shares anytime soon. Sears' stock price has declined significantly over the past several years. In fact, the stock has lost more than half its value in the past five years. Sears is stuck in a long-term decline, and it's hardly a guarantee that it will recover. That's because Sears is still losing tons of money, and its response to aggressively close stores has not worked.

In 2013, Sears lost $1.4 billion, which was an expanding loss from the $930 million loss booked in the prior year. Heading into 2014, management's biggest strategic initiative was to close a lot of stores. Over the course of 2014, Sears closed or announced the closure of 235 under-performing locations, most of which were Kmart stores. Unfortunately, this hasn't stopped Sears from losing a lot of money. Sears lost $548 million last quarter, which was bigger than the $534 million lost in the same quarter in 2013. The fact that Sears' losses are widening while it's closing stores indicates the strategy isn't working.

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With so many other highly profitable retail stocks out there as viable options, there is simply no reason to buy Sears right now.

Source: Best Buy.

(Best Buy): Best Buy ended 2014 on a high note, with investors pushing the stock up nearly 30% in the second half of the year. Helping to fuel that surge was investors' optimism regarding the consumer electronics giant's new management team and increased cost savings, including the retailer's plans to lock in $1 billion in cost reductions under its Renew Blue plan.

However, investors appear to have been overly confident about Best Buy's recovery, with the stock falling more than 10% since the start of 2015 after the company gave sales and profit guidance for the next six months that disappointed Wall Street. Weak demand for consumer electronics and lower prices were cited as reasons for the muted outlook.

Looking ahead, the company's cost structure can only improve so much, and intense price competition threatens to further erode Best Buy's margins. There is still plenty of uncertainty about Best Buy's future, which is why I won't be buying the stock anytime soon.

On top of this, dozens of retail stocks are available today that offer investors less risk than Best Buy. Department store chain Macy's , for example, boasts much stronger margins and positive same-store sales. Additionally, Macy's stock looks cheap with a price-to-earnings growth rate, or PEG, of 1.3, below the industry average. Therefore, I'd rather own Macy's, which is reasonably priced and firing on all cylinders, over Best Buy, which continues to face significant headwinds going forward.

Source: Target.

Joe Tenebruso (Target): Whenever I study a retail investment, I ask myself one question: Is this business Amazon-proof? Increasingly, that answer has been "no." That's because the retail titan has built a wide moat around its core e-commerce business, and it continues togrow more impenetrableby the day.

Founder and CEO Jeff Bezos is relentless when it comes to increasing the value Amazon provides to its customers, while surgically destroying any remaining advantages of its rivals.

And now, thanks to Amazon's recently launched Prime Now service, Bezos and his team may be about to eliminate one of the last remaining advantages of brick-and-mortar retail chains: immediacy. With Prime Now, Amazon will use its state-of-the art distribution network to deliver thousands of items to customers in one hour or less. The program is currently available in Manhattan, and Amazon plans to roll out Prime Now to additional cities over the course of 2015.

This new service could be highly disruptive to traditional brick-and-mortar retailers like Target, who benefit from convenience purchases. And if customers begin to order more daily essential items (e.g., paper towels, shampoo, and batteries) through online programs like Prime Now, Target could lose sales not only on these goods, but also on the additional purchases arising from the customer traffic they help generate. That could be devastating to a retailer like Target, which is already struggling to maintain its margins while matching the prices of online rivals such as Amazon.

That's why I'd stay clear of Target's shares, and urge Fools to consider targeting Amazon.com instead for their retail investment dollars.

The article 3 Retail Stocks We Won't Buy (Hint: Wal-Mart Isn't One) originally appeared on Fool.com.

Bob Ciura has no position in any stocks mentioned. Joe Tenebruso has no position in any stocks mentioned. His wife's never-ending shopping odysseys through the aisles of Target have,however, become the stuff of legend.Tamara Rutter owns shares of Amazon.com and Target.The Motley Fool recommends Amazon.com and Berkshire Hathaway. The Motley Fool owns shares of Amazon.com and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.