Two of the top 200 Bullish Price Surprises from Monday’s trading were Arthur J. Gallagher & Co. (AJG) and Five Below (FIVE).
Year to date, FIVE is up 39% compared to 5% for AJG; over the past five years, the results are reversed, with the global insurance broker up fourfold over the discount retailer.
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In the past, I’ve recommended both stocks. I like how they’re run and, for different reasons, they remain companies whose products and services are in demand with consumers and businesses.
While they play in two entirely different industries, their share prices are almost identical, which begs the question: If you only had enough investable cash to buy one of them, which should it be?
Here are my thoughts.
Five Below Has Its Mojo Back
Back in July 2024, I suggested that aggressive investors use unusually active put options to profit from Five Below’s falling knife.
The plan involved selling cash-secured puts to enter its shares at prices between $50 and $60. Specifically, I focused on the Aug. 16/2024 $60 put. Its bid price on July 19 was $0.50 for a meager return of 0.31%. Annualized, it was 4.04%. At the time, I said it was 8.6%, which is way off. The only thing I can think of is that I mistakenly used the $4.50 bid price from the $65 strike for a 120-day expiration rather than a 28-day expiration.
The rationale doesn’t change. It’s a small return to obtain a better price on a stock that had been beaten down by 64% from $213 only seven months earlier. The lowest the share price got in those 28 days was $64.07 on Aug. 7/2024. It did get below $60 in April 2025, bottoming at $52.38. Its shares are up 394% in the 16 months since.
It’s on a heater. It’s definitely got its mojo back.
In January, I discussed Five Below’s most recent bullish price surprise. I mentioned that analysts were lukewarm about the stock, in part because of its premium valuation, giving FIVE a target price of $203; It’s blown through that. It’s now $268.95, with 18 out of 24 analysts rating it a Strong Buy (4.50 out of 5).
Earlier in August, BlackRock reported in its quarterly 13F report that it had taken a new position in Five Below. It is now the company’s largest shareholder at 9.7%. That’s also encouraging.
On July 17, Five Below opened its 2,000th store, with plans for 1,500 more in the U.S. over the next 10-20 years. With a plan to grow its customer base beyond $5 prices, it should continue to see its top and bottom lines grow over the next 3-5 years.
While still expensive, its business model is differentiated enough from other discounters to attract long-term investors like BlackRock.
AJG Is Also Rebounding
The insurance broker’s shares in February hit a new 52-week low of $210.01, the 21st new low of the past 12 months. It’s up 28% in the six months since.
The gains come from its healthy Q2 2026 results announced at the end of July. They included a 24% increase in revenue to $3.96 billion, while adjusted earnings increased 22% to $734 million.
Like Five Below, its valuation is high, but not ridiculously so. Based on earnings per share estimates from 13 analysts, AJG shares trade at 20.7 times the 2o26 forecast of $13.27 and 18.1 times the 2027 forecast of $14.89.
The following 10-year chart shows the historical forward P/E. As you can see, from a historical perspective, it’s actually quite reasonable. If the forward P/E multiple returns to 30x, as it was in early 2021 and 2025, the share price would be close to $400.
Source: S&P Global Market Intelligence
In my February article, I said about the company’s acquisition strategy: “The opportunity to buy a smaller version of itself [AssuredPartners for $13.78 billion] was too good to turn down. I think you’ll see Gallagher go back to making smaller tuck-in acquisitions in the future.”
In Q2 2026, it closed six deals, adding $58 million in annualized revenue, down from $291 million in Q2 2025. CEO J. Patrick Gallagher Jr. said in the quarterly conference call that it had 30 deals to be completed in the future, adding $500 million in annualized revenue. That’s an average of $17 million per deal, down from a $32 million average in Q2 2025.
The important thing is that it expects organic growth of 6% in 2026, the second consecutive year delivering mid-to-high single-digit organic growth.
Analysts generally like AJG stock. Of the 24 analysts covering it, 18 rate it a buy (4.46 out of 5), with a target price of $293.55, above its current share price.
FIVE Vs. AJG: Which Is the Better Buy?
If valuation is your biggest concern, Five Below’s 10-year average forward P/E is 33.1x, about 50% higher than Gallagher’s at 22.4x. Of course, Five Below’s organic growth is considerably higher.
So, the question an investor might ask themselves is what type of growth are you after?
Five Below uses new store openings to add to its top-line revenue beyond same-store sales growth, while Gallagher relies on acquisitions of other insurance brokers beyond its organic growth in premiums it charges its customers. There are risks from both models.
Given the tariff-crazy environment we find ourselves in again, investing in a service-based business such as a global insurance broker has its advantages. Services, for now, are less prone to tariffs, but not immune.
However, Five Below has done a good job mitigating tariffs on the products it imports to the U.S. As a result, it expects gross margins and operating margins to improve by 130 and 100 basis points, respectively, in 2026.
If you can only own one, I’d go with Five Below, given American consumers' desire to cut costs. Both, though, have excellent businesses.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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