Key points
- With international growth driving the business, Walmart offers some diversification, including Sam’s membership clubs.
- BJ’s Wholesale Club represents deep value in the membership club industry and is expanding the margin.
- PriceSmart is a pure play on clubs and emerging markets in Latin America; has increased its dividend by 26% and is due for another big increase this year.
- 5 Stocks We Like Better Than Costco Wholesale
Membership clubs have driven the growth of the retail industry, but now there is a shadow over the market. The segment is losing momentum and sales are expected to slow again in 2024, setting markets up for a correction given weaker-than-expected results. However, a pullback in price action would present a buying opportunity for investors. Sustained growth, cash flow and capital returns are enough to keep these stocks going over the long term, so they are good buys when an opportunity presents itself.
Costco Wholesale NASDAQ: COST it may be trending upward simply because it is the market leader, and there is hope that another special dividend will arrive soon. However, others in the group offer what Costco stock doesn’t: value. This is a look at three non-Costco membership clubs rising in the first quarter that investors can aim to buy when their prices fall.
Walmart: Diversification Supports Industry-Leading Growth
The one from WalmartNew York Stock Exchange: WMT Growth accelerated in the fourth quarter, but forecasts for the year are weak. Analysts now expect growth to slow into the low single-digit range and may be overestimating the strength given the outlook for interest rates. The FOMC is unlikely to reduce interest rates before mid-year, keeping economic conditions tight and influencing consumer habits. Walmart’s decision to acquire Vizio is a sign of the difficulties faced by retailers as Walmart leans on non-traditional channels to support growth.
The bottom line from the fourth quarter release is that Walmart’s diversified business model is why the company is a market leader. Core sales in the US were tepid, in line with overall retail trends for the period. Sam’s Club, the member clubs business segment, grew 3.3% as its business slowed sequentially. The international segment, including advertising, grew 17%.
Analysts remain bullish on Walmart, although recent activity suggests a top may be in sight. The consensus target is trending higher, but two downward revisions to the price target suggest the upside momentum may be waning. As it stands, the consensus implies fair value at current levels with a possible 1,000 basis point upside at the top end. The upward trend in sentiment could continue into the end of the year if Walmart manages to beat its forecasts. Until then, Walmart is a potential buy candidate on a dip.
BJ’s Wholesale Club represents profound value for investors
BJ Wholesale Club NYSE: BJ is growing sales, membership base and number of stores, providing leverage to investors. It’s also a deep value among member clubs trading at just 18 times earnings and growing at a market-leading pace. Walmart trades at earnings much higher than 25X, while Costco, the other US-based pureplay club, trades earnings above 30X.
BJ’s business increased 8.7% year-over-year in the fourth quarter with a 0.5% increase in traffic-driven comps, a 6.5% increase in membership dues, a record renewal rate of 90% and six new stores. The forecast for the year is not solid but is in line with analyst consensus for 1.5% revenue growth and a wider margin. The salient point is that this stock does not pay dividends but may do so in the future; until then, buy back shares significantly and cut the count by 1.1% last year.
Analyst sentiment has been mixed over the past year, with sentiment declining to Hold and price target rising. The bottom line is that analysts support the market and have put a cap on the price action. The latest revisions, issued days before the earnings release, raised the lower end of the range to $62, aligning with critical support targets. BJ stock is another Hold and buy-on-the-dip candidate.
PriceSmart has exposure to emerging markets that gives it strength
Modest prices NASDAQ: PSMT it’s another deep value in the membership club arena, trading at just 18 times this year’s earnings. It will also be the leading group in 2024 in terms of growth, with an expected increase in turnover of almost 10%. Cash flow will also be a bright spot as it is improving and will be used to grow the business, pay dividends and buy back shares.
The latest dividend news includes a 26% increase that could happen again this year. The new payment is worth about 1.4% to investors, with shares near $83 and just 25% of the earnings outlook. Earnings growth is expected to continue into 2024, aided by corporate sales, store count growth and share repurchases. Share repurchases reduced the count by 1.46% year-over-year at the end of FQ2/CQ4. Two analysts tracked by Marketbeat.com rate this stock a Moderate Buy, but see it as fairly valued at current levels. A pullback to $80 or below could produce a solid rebound if new highs are not made now.
Before you consider Costco Wholesale, you’ll want to hear it out.
MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Costco Wholesale wasn’t on the list.
While Costco Wholesale currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.
View the five stocks here
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