Investing in the stock market is one of the best ways to build lasting wealth. Even seemingly small sums of capital can turn into huge amounts given enough patience and discipline to stay the course. And what's most encouraging is that even beginners can do well over time.
The stock market isn't just reserved for experts; new investors can position their portfolios to produce strong returns. Buying these two growth stocks is a wonderful place to start. Let's take a closer look.
A dominant warehouse retailer
The first business to consider owning is Costco Wholesale (COST 1.01%). Even though it sells high-quality merchandise in a range of product categories, this chain of buyers' club stores is known for having some of the lowest prices around. And this has been especially important for consumers in the past couple of years, when inflation has been running hotter than normal.
Costco's fiscal 2023 net sales of $237.7 billion were 59% higher than in pre-pandemic fiscal 2019, a clear indicator of the company's relevance in a turbulent economy.
The retailer's customers must be members to shop at one of its 863 locations. This means paying $60 a year for the basic membership or $120 for the Executive plan that comes with added perks, like 2% back on purchases.
Based on the worldwide renewal rate of 90.4% in the latest fiscal quarter, these memberships are extremely popular. Consumers can more than make up the annual fee in savings while shopping, so Costco has created a loyal and sticky customer base.
Investors might assume that due to its massive size, this business doesn't have lots of growth potential, but that's an incorrect assumption. The leadership team opened 23 net new warehouses in fiscal 2023, with 10 planned for the current 12-week period.
And even in the U.S., Costco's most mature market, there is plenty of opportunity to add more stores. This should help boost revenue and earnings in the years ahead.
A booming athleisure brand
Investors should also take a closer look at Lululemon Athletica (LULU 1.31%). The business continues to show no signs of slowing down, despite ongoing headwinds.
Revenue in the second quarter (ended July 30) of $2.2 billion was up 18% year over year. And diluted earnings per share jumped 19% to $2.68. These strong double-digit gains have been normal in the past few years, something rival Nike can't say.
Lululemon's key asset is its strong brand presence. The business sells quality merchandise for men and women that is at the higher end of the price spectrum, generating outsize profitability. It posted a gross margin of 58.8% last quarter, well ahead of industry peers. And the company's operating margin has averaged a stellar 20.9% in the last three fiscal years.
Management expects the good times to keep rolling. In April last year, it announced a growth plan called the Power of Three x2 to build off a previous financial outlook that the business hit well ahead of schedule.
By fiscal 2026, sales are expected to total $12.5 billion, which would be double fiscal 2021's total. Investors can be optimistic about this forecast because this would mark slower growth than in previous years. Lululemon will prioritize growing its men's, digital, and international revenue.
Looking at valuations
It's hard for anyone to argue that Costco and Lululemon aren't great businesses. Their strong financial performances and meaningful prospects are attractive characteristics that any investor would dream about for their own portfolio.
There is one factor, however, that deserves a closer look. And that's the valuation. As of this writing, shares of Costco trade at a forward price-to-earnings (P/E) ratio of 36, while Lululemon sells at a forward P/E of 33.4. These are both higher than the S&P 500's forward ratio of 19.3.
At first glance, investors who are strictly focused on value might turn away from these two stocks. But I believe their quality makes these companies worth paying up for.
