Why BJ's Wholesale Club Might Be a Smarter Investment Than Costco

Investors Love Costco Stock. But Its Smaller Rival Is a Better Buy Right Now.

The most important metric for this investment is trending in the right direction. Investors love warehouse chain Costco Wholesale (NASDAQ: COST), and for good reason.

Why BJ's stock?

This is why I want to highlight BJ's Wholesale Club (NYSE: BJ) stock. It offers investors many of the exact same benefits of Costco stock but is a better bargain by a mile. Considering the business model is membership-based, an investment thesis for BJ's Wholesale Club revolves around its ability to gain and retain members.

Should investors buy BJ's stock?

I'm not going as far as to say that BJ's is a better business than Costco -- Costco is undoubtedly among the very best. But BJ's is a good business nonetheless. And its valuation is far more reasonable, which is why I believe it's the better buy.

With Costco stock trading at a 50% premium to its long-term average valuation, I believe that it is easily overvalued today for those looking to start a position. Therefore, I'd say that there's no margin of safety with Costco stock.

By contrast, BJ's stock trades at a reasonable valuation -- perhaps not grossly undervalued, but reasonable. Consequently, I believe it's the safer stock. And I believe that the chance of market-beating returns is much higher given its cheaper starting point.

Should you invest $1,000 in BJ's Wholesale Club right now?

Before you buy stock in BJ's Wholesale Club, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and BJ's Wholesale Club wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.