Image source: Amazon Rupert Hargreaves | Sunday, 9th May, 2021 | More on: TSCO AMZN Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. We think that when a company’s CEO owns 12.1% of its stock, that’s usually a very good sign.But with this opportunity it could get even better.Still only 55 years old, he sees the chance for a new “Uber-style” technology.And this is not a tiny tech startup full of empty promises.This extraordinary company is already one of the largest in its industry.Last year, revenues hit a whopping £1.132 billion.The board recently announced a 10% dividend hike.And it has been a superb Motley Fool income pick for 9 years running!But even so, we believe there could still be huge upside ahead.Clearly, this company’s founder and CEO agrees. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Tesco (LSE: TSCO) shares have plenty of attractive qualities, in my eyes. However, I think Amazon (NASDAQ: AMZN) shares also look attractive, but for different reasons.Understanding Amazon shares Choosing between the two isn’t easy. I think Amazon has much brighter growth prospects. Indeed, the company is only expanding around the world, while Tesco is retreating. The latter sold its biggest overseas business last year and returned the cash to investors. Meanwhile, Amazon is still investing tens of billions of dollars every year growing its divisions across the globe. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…And Amazon is far more than just a retailer. The company is probably best known for its retail business, but it also has a large advertising and cloud computing arm. Both of these divisions now provide the bulk of the group’s profit. Tesco too has other businesses aside from its core retail division. It’s been investing more in its financial arm and mobile phone operation, although these are still small fry compared to the retail operation. In my opinion, the debate of which is the better buy, Tesco shares or Amazon shares, comes down to simplicity and cash returns. Tesco shares and dividend growth I think Tesco is a very simple business. The company buys products from suppliers, adds a small margin, and then sells these on to consumers. There’s a bit more to it than that, but that’s the gist of it. Amazon not only buys and sells from suppliers and consumers, but it also owns one of the world’s largest airlines, haulage businesses, cloud computing businesses and advertising businesses. Put simply, there’s far more to understand with the American company, and that’s why I’d buy Tesco shares over Amazon shares. I’m a big believer in investing in what I only understand. I can understand Tesco’s business model. I roughly know how Amazon works, but I struggle to understand how the company’s retail division actually makes money. Another attractive quality of owning Tesco over Amazon is the UK retailer’s cash generation. Management is targeting an annual free cash flow of £1.2bn. This should be enough to support the company’s 4% dividend yield, and then some.Granted, this cash flow is minuscule compared to Amazon’s $31bn of free cash flow for 2020, but all of this is being reinvested back into growth. At least Tesco’s investors are getting some cold, hard cash in their pockets. That said, Tesco’s growth is unlikely to be anywhere near that of Amazon’s going forward. That’s the trade-off. Tesco is an income stock. Amazon is a growth investment. Risks and challenges The risks facing each company are different as well. Competition in the e-commerce sector is fierce. This could hurt Amazon’s growth and profit margins. The same can be said for the cloud computing and marketing industries.The UK supermarket sector is also viciously competitive. More competition and higher costs could hurt Tesco’s profit margins, leading to reduced free cash flow. Even after considering these risks and challenges, I’d buy Tesco shares as an income investment over Amazon shares. However, I also think there’s a place for the latter in a growth portfolio. Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tesco and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. See all posts by Rupert Hargreaves Our 6 ‘Best Buys Now’ Shares Learn how you can grab this ‘Top Income Stock’ Report now Simply click below to discover how you can take advantage of this. The Motley Fool UK’s Top Income Stock… Should I buy Tesco shares or Amazon shares? Enter Your Email Address
Should I buy Tesco shares or Amazon shares?