When it comes to investing, your starting price really matters. You could be looking at the best-run company in the world, but if the stock is extremely overvalued at the time, your returns will suffer.
Lower prices don't necessarily correlate to a better-performing stock, of course. A stock's price is ultimately driven by the underlying business and other factors. Still, you have a better shot at great returns if you can purchase shares at a discount.
With that prospect in mind, let's look at some stocks that have underperformed the market lately and are available for less than $100 per share today. Read on for some good reasons to buy Starbucks (SBUX 0.09%) and TJX Companies (TJX -1.55%) right now.
1. Starbucks
Starbucks stock has fallen out of favor on Wall Street on fears that the coffee giant is entering a period of weaker sales growth. Management revealed slower comparable-store sales trends in its late-January earnings update and noted that customer traffic fell in the core U.S. market. That's the same challenge dogging McDonald's lately, indicating a tougher selling environment in the fast-food industry.
Starbucks will recover. The chain already noticed a slight traffic rebound late in the fiscal Q1 period, and new menu additions should help support that positive momentum. In the meantime, this business remains highly profitable.
Margins widened last quarter despite the slower expansion rate. Starbucks generated $2.4 billion of operating cash in the period, too, up from $1.6 billion a year earlier. "I am proud of the significant margin expansion and double-digit earnings growth we delivered," CFO Rachel Ruggeri said in a press release. Shareholders should be just as proud to hold this discounted stock over the long term.
2. TJX Companies
Off-price retailers do well in a wide range of selling environments, but especially in those characterized by consumers who are searching for deals. It also helps when retailers are seeking to unload extra inventory, as they have been for over a year.
TJX Companies, owner of the TJ Maxx, Marshalls, and Home Goods brands, is winning more than its fair share of that off-price retailing growth. Rising customer traffic in 2023 helped the chain beat management's sales goals as comps improved by 5% to push annual revenue past the $50 billion mark. Net income jumped 21% for the full year, allowing for some serious direct cash returns. TJX sent $4 billion to shareholders in 2023 through dividends and stock buyback spending.
Management is projecting slower growth ahead in 2024 as shoppers begin returning to more full-priced retailing stores. There's no sign of a sharp change in spending habits, though. Instead, TJX said in late February that it is still seeing ample, high-quality inventory available from retailers for the upcoming spring selling season.
Most Wall Street pros who follow the stock are expecting sales to rise by about 4% this year, which is modest but can still allow for strong earnings growth. The stock's valuation is attractive, too. At just under $100 per share, you can own TJX for 25 times the past year's earnings. That's close to a 52-week low premium for this business.
It's possible that TJX shares will underperform in the short term if growth slows following the past year's 5% gain. But that's a temporary challenge that doesn't threaten the investing thesis for this successful retailer. Hold this stock for many years, then, and you're likely to see significant returns as TJX expands its sales footprint toward the $100 billion mark.
