The S&P 500 continues to set new market highs, and such trends may concern some investors. Markets do not march higher consistently, and investors should not discount the possibility of a correction or even a crash.
However, even amid a downturn, some stocks can prosper. For example, companies such as BJ's Wholesale Club Holdings (BJ 1.69%) and Verizon Communications (VZ 0.05%) can thrive even if the overall market does not perform well.
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BJ's Wholesale
BJ's Wholesale had historically lagged the performance of competitors such as Costco Wholesale and Walmart's Sam's Club. While its peers operate warehouses all over and outside the US, BJ's remained a regional player, with most warehouses near the Eastern Seaboard.
However, during the pandemic, BJ's managed to post massive growth numbers after a long period of stagnation before COVID-19. Pandemic shoppers took to BJ's grocery offerings, which strive to offer bulk discounting to families of all sizes.
Moreover, membership now exceeds 6 million, and higher-tier membership penetration rose to 34%, up 400 basis points in the last year. Also, with 75% of members signed up for easy renewal, first-year renewals have reached historic rates, according to the company.
Such an improvement helped BJ's financials. During the first nine months of fiscal 2021, revenue of $12.3 billion increased 7% compared with the first three quarters in 2020. Still, due to the cost of sales rising by 8% during that period amid supply chain challenges, net income of $319 million fell 2% during the first three quarters of 2021. Lower interest costs and income taxes failed to offset a 7% drop in operating income.
While the company declined to offer specific guidance, it projected that membership would grow in the low single digits after earlier predictions that it would stay flat. Also, the company eliminated nearly $360 million in debt over the last year, raising the company's book value by more than 160% to $568 million.
Also, on the third-quarter earnings call, management pledged to continue to expand westward. The company has proposed its first Indiana location, according to the Indianapolis Star. This could point to an eventual nationwide footprint, and similar expansion moves by peers like Costco served investors well in past decades.
Furthermore, despite the 75% gain in the stock over the last year, it could continue to move higher. The recent gain puts BJ's P/E ratio at 22, well below the earnings multiples of approximately 50 times trailing earnings for both Costco and Walmart. Such a trend makes it more likely that a market crash would not stop the growth in this retail stock.
Verizon
Verizon has struggled as it battles its two peers, AT&T and T-Mobile US, for market share. Investors may have soured on the stock over massive capital costs in its 5G buildout. It spent almost $14 billion in just the last nine months on its network quality. Additionally, the $53 billion it invested in C-band spectrum licenses amounted to more than its two main peers combined.
However, Verizon has long remained the leader in service. It has won the most awards from JD Power for network quality 27 consecutive times. Moreover, the investment in 5G has spawned a new business as it offers network-as-a-service (NaaS). NaaS is a subscription data service that can connect Internet-of-Things (IoT) devices, self-driving cars, and other applications in the 5G world. Due to the need for telecom services in any economy, a market crash would likely not derail this booming business.
Also, with $99.5 billion in revenue in the first nine months of the year, Verizon's growth remains on track. That top-line result represents a 6% increase compared with the first three quarters of 2020. Net income surged 31% over the same period to almost $17.9 billion. Lower interest costs and $1.2 billion in income from foreign exchange and other finance-related transactions more than compensated for increased income tax expenses.
Additionally, an increase in the dividend payout this fall to $2.56 per share annually has taken the cash yield above 5%. Due to the generous yield and 17 consecutive years of increased payouts, many investors often think of Verizon as a favorite dividend stock.
Despite the lofty payout, Verizon stock has fallen by 17% over the last year due in large part to its higher debt burden. Nonetheless, the P/E ratio of just over nine times trailing earnings makes both the stock and the income stream a massive bargain. Those low costs and rising dividends could pay off for investors once they better appreciate Verizon's improved 5G value proposition.
