The stock market's double-digit rally in 2020 means many stocks that began the year priced under $50 are now sitting well above that mark. But investors seeking lower share prices can still find attractive opportunities -- if they know where to look.
1. BJ's Wholesale Club
Investors looking for exposure to the wholesale retailing niche usually gravitate toward the industry's biggest players, Walmart and Costco. That makes sense -- size is a major competitive advantage in an industry with razor-thin profit margins.
But BJ's Wholesale proved in the last year that it can compete, and win, against these more established leaders. It posted consistently strong sales growth through the pandemic, with revenue jumping 18% through the first three quarters of its fiscal year. That's a higher rate than Costco's 12% growth over its past three quarters and far higher than Walmart's 6.5%.
That market share growth should support BJ's as it expands from its regional focus in the eastern part of the U.S. Soaring sales also resulted in gushing cash flow that management can direct toward improvements across its merchandising, supply chain, and e-commerce platform. Put it all together, and BJ's Wholesale seems ready to raise its competitive game in 2021. Investors should be happy to go along for the ride.
Supermarket chain Kroger had a disappointing 2019 as it lost market share to its main rival, Walmart. But that frustrating trend appears to be behind it now.
Kroger's sales jumped 11% in the most recent quarter to comfortably outpace the gains that Walmart logged in its grocery segment. Kroger got a key assist from popular in-store brands like the Simple Truth franchise. But the bigger factor was its booming digital selling platform. After lagging peers in e-commerce in 2018 and 2019, the chain is finally on equal footing when it comes to offering a true omnichannel shopping experience to grocery shoppers.
Kroger will no doubt report slower growth in 2021 as compared to its COVID-19-affected 2020 results. But its stronger operating position suggests a return to the market-beating expansion rates that shareholders enjoyed through most of the past decade, when the chain was consistently winning market share from rivals like Walmart.
3. Foot Locker
Foot Locker's business took a significant hit from COVID-19. And, with about 10% of its store base still closed as of early November, that pressure is still on. However, there are a few good reasons to like the stock today.
Start with the fact that the business held up relatively well, considering the pandemic forced widespread closures and reduced traffic levels through most of 2020. Comparable-store sales are down 7.5% over the first three quarters of the year, and Foot Locker remained solidly in the black with $200 million of net income compared to $357 million a year earlier. Many peers, including Designer Brands, have reported far sharper sales declines.
The chain isn't sitting on bloated inventory, either, which means investors can look forward to firming prices in the holiday quarter. The footwear and athleisure industries remain popular with shoppers, as recent results from Nike and lululemon athletica have demonstrated.
Sure, Foot Locker isn't as well situated as these growth stocks. But attractive assets like its strong balance sheet (with $1.4 billion of cash and only $131 million of debt) , valuable brand, and loyal shopper base should allow the retailer to play a key role in the industry's rebound in 2021 and beyond.