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Why this FTSE 100 discount retailer is on my best stocks to buy now list

I am looking for value FTSE 100 stocks from my best stocks to buy now list. Due to the global pandemic and lockdowns in force, retail is a tricky sector to gauge right now.
Despite the economic uncertainty in retail, one stock I really like is B&M …

I am looking for value FTSE 100 stocks from my best stocks to buy now list. Due to the global pandemic and lockdowns in force, retail is a tricky sector to gauge right now. Despite the economic uncertainty in retail, one stock I really like is B&M European Value Retail (LSE:BME).

It is classed as an essential retailer, therefore its multiple locations currently remain open. Many other non-essential retailers have been forced to shut which has been devastating for an already ailing industry. 

FTSE 100 opportunity

More commonly known as B&M Bargains or B&M Homestore, it currently boasts over 600 stores across the UK. BME employs over 28,000 people.

BME is known to0 as a discount retailer. In recent years, such stores have become more popular as consumers are moving away from the traditional retailers looking to make their cash go further. It is estimated BME attracts over four million customers each week.

I believe that BME represents excellent value which is one reason why it is on my best stocks to buy now list. As I write, it currently has a forward price-to-earnings growth (PEG) ratio of just 0.3. It also carries a juicy 10.5% dividend yield for this current fiscal year, which is very tempting.

To provide some context, the average dividend yield for the FTSE 100 is closer to 3%. The BME share price has increased over 50% in the past 12 months. As I write, shares are trading for 587p per share.

This is nearly 120% higher than last March's market crash low of 268p per share.

Best stocks to buy now carry risk and reward

The FTSE 100 retailer carries its own risks. BME sells lots of essential goods but also sells discretionary goods that make it a lot of money. If consumer spending weakens as the economy continues to come under pressure, BME could see its performance affected.

In addition to this, BME has been hit with higher distribution and transport costs which will have affected its balance sheet. This has been driven by higher inflation. An argument could be also made that BME's significant share price rise means it could have peaked and may not climb much further. 

Despite these very real risks, I feel last month's announcement of Q3 results vindicated my choice to have BME on my best stocks to buy now list. The FTSE 100 incumbent announced a 22.5% increase in group revenue. This is compared to 9.9% in the same period last year.

BME decided to reward its shareholders with a special dividend of 20p per share. In total, this equated to over GBP200m.

My verdict

BME is one of my best stocks to buy now as I feel it provides an element of safety in current uncertain times. There is a need for consumers to make sure their cash goes further as budgets are stretched currently.

I believe this will benefit B&M. In my opinion, last month's trading figures are evidence of this. There is a bright outlook for B&M's profits which is underlined by the special dividend it surprised everyone with last month.

I continue to look at the FTSE 100 to make me a passive income so here is one of my other top picks, which offers a dividend yield of over 5%.

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Jabran Khan has no position in any shares mentioned.

The Motley Fool UK has recommended B&M European Value.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro.

Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.