Stocks are off to a good start in 2023 as fears of a recession have somewhat eased. But if you're looking for bargains on the market, there are still a few good options after last year's wipeout. Let's take a look at two consumer stocks that could be smart buys right now.
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1. Williams-Sonoma
Williams-Sonoma (WSM -0.11%) has been a top brand in home furnishings retail for generations, and today it's more than just its namesake brand as the company owns both West Elm and Pottery Barn. In fact, both of those brands generate more revenue than Williams-Sonoma does these days.
Williams-Sonoma was founded in 1956, but the company has evolved with the times and now brings in around 70% of revenue through its e-commerce channel. As the company has transitioned to online sales, it's rationalized its store footprint to cut down on fixed costs, driving up profitability.
Its recent results show how successful the company has been. Comparable sales in the third quarter rose 8%, or 25% on a two-year basis and nearly 50% over the last three years, showing how the company has been able to maintain its momentum from the pandemic. That's a notable contrast from most home furnishings retailers, which have seen sluggish or even declining growth this year.
It's also delivered strong results on the bottom line as the company reported an operating margin of 15.5%, and earnings per share increased 13% to $3.72.
However, the market seems to be skeptical that Williams-Sonoma can maintain that growth rate as the stock trades at a dirt cheap price-to-earnings (P/E) ratio of just 8. The retailer has also been returning capital to shareholders through share buybacks, reducing its shares outstanding by 11% over the last year. It offers a 2.4% dividend yield.
The company pulled its 2024 guidance in its recent earnings report, which seemed to spark some fears, but that was mostly due to macroeconomic uncertainty. At the current price, the upside potential clearly outweighs the downside risk, and the company has emerging growth opportunities as well in its B2B and marketplace businesses.
2. Camping World
Camping World (CWH -1.84%) is the country's largest retailer of RVs and has grown largely through a roll-up strategy, acquiring independent RV retailers and folding them into the Camping World brand.
The company now has nearly 200 stores in 42 states across the country, and that reach is a competitive advantage which it has leveraged, in part, through the Good Sam loyalty program. For $29 a year to start, Good Sam members get benefits such as fuel discounts, towing, and campground discounts.
The RV industry is notoriously cyclical as recreational vehicles are expensive and generally a discretionary purchase. RV sales boomed during the pandemic and have begun to decline across much of the industry. Camping World reported a 3.2% decline in revenue to $1.9 billion in the quarter.
Profits were down as well, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) falling 40% to $114.6 million. However, the company has found success selling used vehicles, setting a record with 14,460 used vehicles sold in the quarter, up 6% from the quarter a year ago.
There are some secular tailwinds supporting Camping World, too. First, the retiring baby boomer population should help support RV demand as RVing is a popular retirement activity -- and some retirees even swap their home for an RV. Second, the rise of remote work should also give young adults the freedom to explore van life if they're so interested.
The recent decline in revenue and profits is expected to continue, and it's reflected in the stock's valuation as it trades at a P/E ratio of just 5.7. What really makes the stock appealing is Camping World's 9.6% dividend yield, which management has promised to support through cost controls and cash management.
If the company can maintain its dividend over the next year, that should be enough to make the stock a winner over the long term, especially considering its unique position as a national RV retailer and the secular tailwinds that should drive demand growth for RVs.
