Membership clubs have been leading the retail sector in growth, but there is a shadow over the market now. The segment is losing momentum, and sales are expected to slow again in 2024, setting their markets up to correct, given weaker-than-expected results. However, a pullback in the price action would be a buying opportunity for investors. Sustained growth, cash flow, and capital returns are enough to keep these stocks advancing over the long term, so they are good buys when an opportunity presents itself. 

Costco Wholesale (NASDAQ: COST) may trend higher simply because it is the market leader, and there is hope that another special dividend will come soon. However, others in the group offer what Costco’s stock doesn’t: value. This is a look at the three membership clubs that aren't Costco, rising in Q1, that investors can target to buy when their prices dip. 

Walmart: Diversification Sustains Sector-Leading Growth

Walmart’s(NYSE: WMT) growth accelerated in Q4, but guidance for the year is weak. Analysts now expect growth to slow into the low single-digit range, and they may overestimate strength given the outlook for interest rates. The FOMC is unlikely to cut interest before mid-year, keeping economic conditions tight and impacting consumer habits. Walmart’s decision to acquire Vizio is a sign of the headwinds faced by retailers as Walmart leans into non-traditional channels to sustain growth. 

The takeaway from the Q4 release is that Walmart's diversified business model is why the company is leading the market. Core US sales were tepid, aligning with general retail trends for the period. Sam’s Club, the member-club business segment, grew by 3.3% as its business slowed sequentially. The international segment, including advertising, grew by 17%. 

Analysts remain bullish on Walmart, although recent activity suggests a top may be in sight. The consensus target is trending higher, but two downward price target revisions suggest upward momentum could wane. As it is, the consensus implies fair value at current levels with a possible 1000 basis points of upside at the high end. The uptrend in sentiment may continue later this year if Walmart can outperform its forecasts. Until then, Walmart is a hold and potential buy-on-the-dip candidate. 

BJ’s Wholesale Club is a Deep Value for Investors

BJ’s Wholesale Club (NYSE: BJ) is growing its comp sales, membership base, and store count, providing leverage for investors. It is also a deep value among member clubs trading at only 18X earnings and growing at a market-leading pace. Walmart trades at a much higher 25X earnings, while Costco, the other US-based membership club pureplay, trades above 30X earnings. 

BJ’s business is up 8.7% YOY in Q4 on a 0.5% increase in traffic-driven comps, a 6.5% increase in membership fees, a record 90% renewal rate, and six new stores. Guidance for the year isn’t robust but aligns with the analysts' consensus for 1.5% revenue growth and a wider margin. The salient point is that this stock doesn’t pay dividends but may in the future; until then, it repurchases shares meaningfully and reduced the count by 1.1% last year. 

Analysts' sentiment has been mixed over the past year, with sentiment falling to Hold and the price target rising. The takeaway is that analysts support the market and have put a floor in the price action. The latest revisions, issued days before the earnings release, lifted the low end of the range to $62, aligning with critical support targets. BJ’s stock is another Hold and buy-on-the-dip candidate. 

PriceSmart has Emerging Market Exposure to Give it Strength

PriceSmart (NASDAQ: PSMT) is another deep-value in the membership club arena, trading at only 18X this year’s earnings. It will also be the group leader in 2024 for growth, expected to increase the top line by nearly 10%. Cash flow will also be a bright spot as it is improving and used to grow the business, pay dividends, and repurchase shares. 

The latest dividend news includes a 26% increase that may be repeated this year. The new payout is worth about 1.4% to investors, with shares near $83 and only 25% of the earnings outlook. Earnings growth is expected to continue in 2024, aided by comp sales, store count growth and share repurchases. Share repurchases reduced the count by 1.46% YOY at the end of FQ2/CQ4. Two analysts tracked by Marketbeat.com rate this stock as a Moderate Buy but see it fairly valued at current levels. A pullback to $80 or lower could produce a solid rebound if fresh highs can't be reached now.