3 stocks to buy if they dip
The S&P500 has had a tough 2022 so far, down 23% at the time of this writing. While many high-growth high-tech stocks have been particularly hard hit by the market rout and could sell for bargain prices, there are still some companies that look expensive.
Here are three stocks that, although they’ve all been down year-to-date, investors will want to seriously consider buying if their prices fall further. Let’s take a closer look.
Chipotle Mexican Grill
While many restaurants just struggled to survive as the coronavirus pandemic gripped the economy, Chipotle Mexican Grill (GCM 2.56%) flourished. The famous Tex-Mex chain increased its number of stores by 14.3% from the first quarter of 2020 to the first quarter of 2022. And even if the company faces difficult comparisons compared to the period of the previous year, the income and earnings per share increased by 16% and 25.6% respectively in the first quarter of this year.
Chipotle has performed so well throughout the pandemic thanks to its strong digital foundation. The company’s popular drive-thru option, known as Chipotlane, increases accessibility and convenience for hungry customers. And the burgeoning rewards program, which now has 28 million members, is helping Chipotle retain customers.
And the business doesn’t seem to be slowing down anytime soon. The management team, led by CEO Brian Niccol, believes that North America can one day have more than 7,000 locations. Not only is this more than double the current footprint, but this goal exceeds the 6,000 slots previously planned.
With shares of Chipotle up 174% over the past five years, the stock is currently trading at a price/earnings ratio (P/E) ratio of 51. This is much more expensive than other restaurant stocks like McDonald’s, Dominos Pizzaand Starbucks. Its shares appear to be priced perfectly, so investors should expect a pullback from current levels.
The superb quality of Costcoit is (COST -1.12%) The business model has been on display over the past two years as consumers flocked to one of the company’s 832 warehouse clubs to complete their entire purchases in one stop. Revenue of $196 billion for fiscal 2021 was 17.5% higher than the prior year. And the momentum is still strong, with same-store sales in May jumping 15.5% year-over-year.
Costco’s overarching goal is to keep the prices of goods – ranging from groceries to electronics – as low as possible. Due to its huge size, the company is able to loosen its bargaining power with suppliers to negotiate favorable terms. Items are marked up only 11%, on average, lower than other major retailers. And thanks to Costco’s lucrative membership model, he is able to retain an incredible clientele. At the end of the third quarter of fiscal 2022, the renewal rate in the United States and Canada was 92.3%.
Unsurprisingly, Costco’s main growth strategy is to open more warehouses. the company plans to open 10 new warehouses in the fourth quarter, most of them in the United States. And in China, where Costco has just two locations today, management sees a huge opportunity.
As of this writing, the stock is trading at a P/E multiple of 35, significantly more expensive than its rivals. walmart and Big BJ Club. Given the stock’s 168% rise over the past five years, the premium valuation is not shocking. Costco is a wonderful company, and it trades as such. Put this one on your watch list for now.
Rounding out this list, a burgeoning sportswear manufacturer Lululemon Athletica (LULU 2.50%). With stores closed during pandemic restrictions, the business has been able to rely on its direct-to-consumer business. In the three months ended May 1, online sales accounted for 45% of its overall business. This helped strengthen the brand, as demonstrated by Lululemon’s exceptional gross margin of 53.9%.
The maker of popular women’s yoga pants now has a growing men’s business. This segment has grown in revenue at a compound annual growth rate of 30% over the past three years, outpacing the female segment’s 24% rate. On the new product front, footwear – which management says is attracting incredible interest from consumers – should also help boost sales.
During the first quarter of 2022, North America generated 83% of the company’s total revenue. Therefore, looking ahead, Lululemon has a huge opportunity internationally. Unsurprisingly, China is likely to be a major growth engine in the years to come. In its last fiscal quarter, markets outside of North America accounted for 62% of Nikeoverall sales. If this indicates where Lululemon can go, then there’s still a long streak of growth ahead.
Lululemon has been a great title to own, growing 426% over the past five years. But despite falling 29% this year, its shares are still selling at a P/E of 35, which is more expensive than competitors’ shares. This company is certainly very successful in the sportswear industry, but investors should be patient before buying the stock.