August 19, 2022, Lowe’s Companies, Inc. (NYSE:LOW) and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ)
In an uncertain retail environment, these two staples stand above competitors for countless reasons as the best stocks to buy now.
The market didn’t move much on Thursday (August 18, 2022) as the Dow, S&P, and Nasdaq all closed fractionally higher. Although the news was relatively light for once, one theme we see lately is the haves and have-nots in the retail space. Some are reporting earnings that invoke causes for concern, like Target. Others, like Lowe’s Companies, Inc. (NYSE:LOW) and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) flex their muscles as the best stocks to buy now.
Both companies are positioned better than many of their retail competitors at the moment. Lowe’s, because of its inventory management skills and dividend, and BJ’s because of its membership-only model, warehouse facilities helping inflation-weary shoppers, and the growth of its grocery sales.
Both stocks also have significant momentum, further boosted by solid earnings reports and growth potential.
However, that brief rundown only teases why LOW and BJ are the best stocks to buy now. Several other reasons and catalysts pit these retailers above the rest.
Lowe’s Companies, Inc. (NYSE:LOW)
The world’s second-largest home improvement retailer is outperforming its top rival, has 48 years of dividend growth and a potential 20+% upside.
Lowe’s and Home Depot will always be lumped together and compared side-by-side. Investors often act as overbearing parents and the two stocks as sibling rivals. It’s natural- Home Depot is the world’s largest home improvement retailer, and Lowe’s is the second largest.
In the recent past, each stock benefited from a booming housing market with 0% interest rates and rising do-it-yourself (DIY) demand. Although both are facing similar headwinds, Lowe’s recent stock performance and earnings report indicate stronger positioning. Since its lows on June 22, 2022, Lowe’s has outperformed Home Depot and could continue to do so.
Additionally, Lowe’s is up 27.32% from its lows and continues to move higher at a reasonable valuation. It still trades -9.14% below its highs and remains relatively undervalued based on multiples like a 16.2x trailing P/E, a 15.8x forward P/E, 0.51 PEG, and 1.4x forward and trailing P/S.
Better Inventory Management Than Competitors Offset a Mixed Earnings Report
On the surface, Lowe’s Q2 earnings results were mixed.
On the one hand, EPS came in at $4.67, beating analysts’ consensus estimates of $4.59 by $0.08 and marking a 9.88% year-over-year increase.
On the other hand, revenue came in at $27.48 billion, well under the consensus $28.16 billion estimate and roughly in line with what revenue was a year ago.
Having said that, Lowe’s raised its earnings guidance and margin guidance because it’s managing its inventory considerably better than many retailers.
Compared to Target and Home Depot, which saw a 35% year-over-year increase in inventory, and Walmart, which reported a 25% increase, Lowe’s inventory grew by a comparably measly 11%. This efficient inventory management will put considerably less pressure on its balance sheets, and improved margins will result.
Perhaps that’s why Lowe’s earnings could grow by 7.98% in the coming year.
LOW’s Fundamentals and Consistent Dividend Have it Standing Above its Peers
Lowe’s has positioned it better than most retailers to survive and thrive in the current economic environment.
First, its 7 out of 9 Piotroski Score indicates that the Company operates with healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
Many of its fundamental margins add further context to this, including its
Lowe’s also offers a strong 8.9% shareholder yield and 1.93% dividend yield. However, not only has its dividend grown at a 17.49% 3-year CAGR. It has increased for a whopping 48 consecutive years. With management aggressively buying back $4 billion worth of shares in Q2 and a payout ratio under 35%, the dividend could expand another 31.3% at an 18.0% 5-year CAGR.
In case you were wondering, this is another reason it’s one of the best stocks to buy now relative to Home Depot.
Source: Finbox
Technicals Signal a BUY Too
According to Barchart, LOW has broken past its support levels. It still has room to run with resistance points of $220.54, $225.71, and $230.23 yet to be touched.
Barchart also sees the following short-, medium-, and long-term technical indicators signaling BUY:
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 50 Day Moving Average
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
9 Upgrades Later and You Have a Stock Staring at a 20+% Upside
Following its earnings report, 9 analysts boosted their LOW price target. Truist Financial notably had the highest price target, increasing its forecast to $263.00. This price target represents a 21.43% upside from August 18, 2022’s $216.59 close.
The 8 other analysts who boosted their price targets are
- Evercore ISI- $250.00
- Jefferies Financial Group- $255.00
- The Goldman Sachs Group- $252.00
- DA Davidson- $247.00
- UBS Group-$250.00
- Wedbush-$225.00
- Robert W. Baird- $235.00
- Wells Fargo & Company- $245.00
TipRanks notes that 19 Wall Street analysts offered 12-month price targets for Lowe’s in the last 3 months. Lowe’s has a street-high price target of $300.00, a low of $190.00, and an average of $238.88. The average price target represents a 10.29% upside from August 18, 2022’s close.
LOW’s year-to-date low and high are $170.12 and $260.83, respectively.
BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ)
A 100% technical BUY score and blowout earnings beat have this stock around an all-time high with more room to run.
While it does not have quite as large of a footprint as fellow warehouse retailer Costco, BJ’s 229 warehouse clubs and 160 gas locations in 17 states are still respectable in this environment.
You could even argue that BJ’s has done more than Costco to keep its head above water and thrive during this inflation era.
Consumers are looking to shop at warehouse stores like BJ’s to buy in bulk in search of bargains. We’re seeing the evidence in real-time. Although inflation cooled a bit in July, it’s still at a 40+ year high, with food costs and other expenses still rising. Judging by how BJ’s stock has soared 44% since May 20, 2022’s lows and how its latest earnings blew past expectations, BJ’s is undoubtedly one of the best stocks to buy now.
BJ’s is Soaring Thanks to a Blowout Earnings Report
BJ’s Q2 earnings report couldn’t have looked better. EPS came in at $1.06 and crushed analyst forecasts by 31.66%, while revenue came in at $5.10 billion and beat analyst estimates by 10.28%. Same-store sales also increased by 7.6%, also more than expected.
BJ’s Wholesale has beaten quarterly earnings estimates every quarter since Q2 2018 and an average of 20.8% over the past two years. It also now has six consecutive quarters of sales growth and shrugged off inflationary concerns thanks to its membership-only model.
It also lifted its full-year sales and profit guidance thanks to strength in its grocery business. Excluding gasoline, it now expects comparable club sales growth of 4%-5% compared to the prior projection of low single-digits. It also sees EPS coming in between $3.50-$3.60 compared to the previous guidance of $3.25.
As a result, the stock rocketed over 7% and jumped to an intraday record.
The Company is on the cusp of something special and could see earnings grow by 8.61% in the coming year, net income rise by 5.9%, and revenue increase at a 6.2% 5-year CAGR.
A Momentum Play With Strong Margins to Back it Up
BJ’s stock price has rocketed over the last few months, and it looks like one of the best stocks to buy now based on momentum alone. But do a deeper dive into its margins, and it becomes clear that it’s so much more than just that.
Its 8 out of 9 Piotroski Score is nearly perfect and indicates healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. Many of its fundamental margins add further context to this, most notably its 80.6% ROCE. BJ’s also has a solid 11.5% Unlevered ROA and 18.2% gross margin.
Broken Out Past Resistance and 100% BUY Rating From its Technicals
BJ’s stock has caught fire, and where the rally stops is anyone’s guess. It’s one of the best stocks to buy now because it’s far from its support levels and has broken past all three resistance points.
That’s why Barchart gives it a rare 100% BUY rating based on its current stock direction in the top 1% strongest and the following short-, medium-, and long-term technical indicators signaling BUY:
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 20 – 200 Day MACD Oscillator
- 50 Day Moving Average
- 50 – 100 Day MACD Oscillator
- 50 – 150 Day MACD Oscillator
- 50 – 200 Day MACD Oscillator
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
- 100 – 200 Day MACD Oscillator
Analysts are Starting to See More Upside for BJ’s
TipRanks may see limited upside for BJ’s, as it trades around a record high. 10 Wall Street analysts offered 12-month price targets for BJ’s in the last 3 months, with a high of $86.28, a low of $58.00, and an average of $75.66. Of course, the average price target represents a limited 2.12% upside from August 18, 2022’s $74.09 closing price.
However, this is easy to take out of context because recent analyst activity tells a different story. In the last week, Deutsche Bank gave BJ’s an $81.00 price target, and Bank of America gave BJ’s an $83.00 price target. These targets could represent an upside anywhere from 9%-12%.
BJ’s year-to-date low and high are $51.45 and $77.47, respectively.
