Smart Investing: 3 Stocks to Add to Your Portfolio When They’re Down
The S&P 500 have had a tough 2022 so far, down 23% so far. While many high-growth, high-tech stocks have been hit especially hard with market trends and can be sold for bargains, there are still some businesses out there that look great.
Here are three stocks that, although all down year-to-date, investors will want to seriously consider buying if their prices fall further. Let’s take a closer look.
Chipotle Mexican Grill
While many restaurants struggle just to survive as the coronavirus pandemic hits the economy, Chipotle Mexican Grill (CMG 2.56%) thrive. The popular Tex-Mex chain increased its store count by 14.3% from Q1 2020 to Q1 2022. And even as business went up, compared to tough comparisons year-on-year. advance, revenue and earnings per share increased 16% and 25.6% respectively in the first quarter of this year.
Chipotle performed very well during the pandemic thanks to its strong digital platform. The company’s popular drive-in option, called the Chipotlane, helps increase accessibility and convenience for hungry customers. And its growing rewards program, now with 28 million members, helps Chipotle drive repeat business.
And the company isn’t slowing down any time soon. The management team, led by CEO Brian Niccol, believes that North America could one day have more than 7,000 locations. Not only is this more than double the current footprint, but that target is well above the 6,000 previously forecast locations.
With Chipotle stock up 174% over the past five years, the stock now trades for price to earnings Ratio (P/E) is 51. Much more expensive than other restaurant stocks like McDonald’s, Domino’s Pizzaand Starbucks. Its stock looks perfectly priced, so investors should wait for a bounce from current levels.
Excellent quality of Costco‘S (PRICE -1.12%) The business model has been on full display over the past few years, as consumers flock to one of the company’s 832 warehouse clubs to complete their entire shopping trip in one stop. Fiscal year 2021 revenue was $196 billion, 17.5% higher than the previous year. And momentum remains strong as same-store sales in May increased 15.5% year-over-year.
Costco’s overarching goal is to keep prices of goods – from groceries to electronics – as low as possible. Due to its huge size, the company has flexibility in its bargaining power with suppliers to negotiate favorable terms. Items increased by just 11% on average, lower than other major retailers. And thank you Costco’s lucrative membership model, it can drive incredible customer loyalty. At the end of the third quarter of fiscal year 2022, the renewal rates for the United States and Canada were 92.3%.
Unsurprisingly, Costco’s primary growth strategy is opening more warehouses. The business plans to open 10 new warehouses in the fourth quarter with most coming in the U.S. And in China, where Costco only has two locations today, management sees a big opportunity.
As of this writing, the stock trades at a P/E multiple of 35, significantly more expensive than its competitors Walmart and BJ .’s Wholesale Club. Given the stock’s 168% gain over the past five years, the premium valuation isn’t shocking. Costco is a great business, and it deals like that. Put this on your watch list right now.
Rounding out this list is a booming sportswear manufacturer Lululemon Athletica (LULU .) 2.50%). With stores closed during the pandemic, the company can rely on direct-to-consumer business. For the three months ended May 1, online sales accounted for 45% of the company’s total business. This has helped strengthen the brand, as Lululemon’s exceptional 53.9% gross margin shows.
The popular maker of women’s yoga pants now has a fast-growing men’s business. This segment has grown in revenue at a CAGR of 30% over the past three years, higher than the 24% rate of the women’s segment. In terms of new products, footwear – which management says is showing incredible interest from consumers – will also help drive sales.
In Q1 2022, North America generated 83% of the company’s total revenue. Therefore, looking ahead, Lululemon has a huge opportunity in the international arena. It should come as no surprise that China is likely to be the main growth driver in the coming years. In the most recent fiscal quarter, markets outside North America accounted for 62% Nikeoverall sales. If this is any indication of where Lululemon might go, there is still a long growth road ahead.
Lululemon is a great stock to own, up 426% over the past five years. But despite a 29% drop this year, the company’s stock is still selling at a P/E of 35, more expensive than its competitors’ shares. The company is certainly enjoying great success in the sportswear industry, but investors should exercise their patience before buying shares.
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