Buying quality stocks and holding them for decades has proven to be the best way to grow your savings. While the market's recent dip might be concerning to some, remember that the S&P 500 index has fallen 10% or more a total of nine times since 2007, but since then, the index has nearly tripled in value.
What are the best stocks to buy today? Three Motley Fool contributors offered their suggestions for the best stocks for new investors to consider buying. Here's why they picked BJ's Wholesale (BJ 1.15%), Costco Wholesale (COST 0.17%), and eBay (EBAY -0.14%).
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A small warehouse operator with room to expand
John Ballard (BJ's Wholesale): A good way to start investing in 2022 is to choose companies that deliver value to consumers in the near term while still offering above-average growth potential over the long term. BJ's Wholesale just reported strong results to close out fiscal 2021 and is a relatively inexpensive growth stock to consider right now.
BJ's operates in the same market as Costco Wholesale. It's a membership-based warehouse store that primarily operates on the East Coast with 226 clubs and 157 gas stations in 17 states. BJ's started in 1984 and has had no problem growing while going up against entrenched retailers like Costco and Walmart's Sam's Club.
Like Costco, most of BJ's profit comes from its membership fees, which grew 8.4% last year to $360 million. Total memberships increased 3% in fiscal 2021 and grew 15% compared to two years ago. BJ's also reported the highest renewal rate in company history -- all good signs that BJ's is offering the consumer incredible value at a time when prices for everyday goods are climbing at the highest rate in 40 years.
"The health of our membership base is poised to deliver long-term future growth," CFO Laura Felice said on the recent earnings call. "BJ's is a company that is stronger today than it has ever been, and we will look to extend and grow this position."
At this juncture, BJ's is offering great value to investors. The stock trades at a relatively inexpensive price-to-earnings (P/E) ratio of 18. That compares favorably to the average P/E of 24 for the S&P 500 index. The stock has already more than doubled from its initial public offering (IPO) in 2018. It just might be like investing in Costco 30 years ago.
An excellent choice for any portfolio
Jennifer Saibil (Costco): If you're considering getting into investing, Costco is a great starter choice. It has an easy-to-understand business model that most people are familiar with; it's been an outstanding stock to own over time; and it still has plenty of room to grow.
Sales have been elevated since the pandemic started. At the beginning, it was due to customers stocking up on essentials. Now, it's due to the company's low prices, which are shoppers' best bet against inflation.
Costco operates a membership model, and it took in almost $1 billion in membership fees alone in the fiscal second quarter (ended Feb. 13). Sales increased 16% year over year in Q2 to more than $100 billion, and earnings per share increased from $2.14 last year to $2.92 this year. That's in spite of increased costs and supply-chain backups. Volume was strong enough to cover higher costs, and it also gives the company leverage when dealing with suppliers. It's laser-focused on keeping prices down, which brings customers in when times are tough but even when times are good. That's why it's such a winning model.
The retailer owns 828 global warehouses with 572 in the U.S., and it plans to open 28 net new units in 2022. Its careful and gradual expansion gives it many long-term growth opportunities, especially as it successfully develops its presence internationally.
Costco stock gained more than 50% in 2021, but it's down 7% so far in 2022. Shares trade at a slightly expensive 42 times trailing-12-month earnings. Costco shares typically trade at a premium because it is a reliable sales and profit-producing machine. It also pays a dividend that it raises annually and which yields .6% at the current price. That's below average, but it also pays a special dividend evey few years when cash levels are high, and management said that might be happening soon.
Costco is a no-brainer stock to keep in any diversified portfolio. It provides growth opportunities as well as income.
An e-commerce retailer that has proven it can grow profits
Parkev Tatevosian (eBay): Online auction and e-commerce site eBay thrived at the pandemic onset. Note that eBay does not own any of the inventory for sale on the platform. Instead, eBay brings together buyer and seller, and takes a percentage of every transaction. In that way, eBay is immune from inventory risk. The unique retailer benefited as hundreds of millions of folks looked to avoid shopping in person. The momentum from 2020 carried into 2021, and the company put together its best two-year revenue growth in the last decade.
Sales growth is icing on the cake for eBay investors as it is a company's primary strength. eBay is better known for impressive earnings growth. Indeed, eBay has increased earnings per share over the last decade at a compound annual growth rate of 23.6%. For those new to investing, earnings growth is arguably the most vital metric to follow. It can be easy to grow sales if you offer your product at a low enough price. Generating earnings growth is more challenging and requires managing a business to be competitive on pricing while keeping expenses below revenue.
eBay's proven capability to do both makes it an excellent, surefire stock for those new to investing. What's more, eBay can be had at inexpensive prices. And since earnings are one of the most vital metrics for a company, it follows that the price-to-earnings (P/E) ratio is one of the most critical valuation metrics to consider. In that regard, eBay is selling at a forward P/E of 12.97. That's near the lowest price eBay has sold for, according to the aforementioned metric, in the last year.
