Costco: This Blue-Chip Stock is a Gold Mine for Investors
July 26 2022 - 8:14AM
Finscreener.org
There are few sectors in the
world that can compete against inflation or a recession. The ones
that can take on both these economic challenges together are even
fewer. Retail groceries, in particular, is one such sector.
And Costco Wholesale Corporation
(NASDAQ:
COST) is one of the best bets in this space. Costco
is the fifth-largest retail company in the world with operations in
13 countries. It is one of the top sellers of wine,
rotisserie chicken, organic goods, choice and prime beef, and
organic groceries.
Among the elite group of top
international retailers, Costco has one of the most reliable
operations. Costco stock has increased 7.15% over the last six
months and is only down about 8% in 2022, despite the fact that the
majority of firms throughout the world have largely failed to
perform. Because of this, the market as a whole is growing more
confident about the performance of its stock.
Costco shields against recession
As the Fed raises interest rates
steadily to combat inflation levels that are at a four-decade-high,
fears about an impending recession are gaining pace. According to
predictions made by Bank of America
(NYSE:
BAC), food companies like
Costco may do significantly better than other stocks as the US
economy continues to slide towards a recession. It is because
customers would rather prefer to spend more time at home
and cook instead of going out for expensive meals.
Even in this weak market, Costco
has continuously performed well. The company has benefited greatly
from the consistent traffic growth and the high rates of membership
renewal, and as a result, has stood out in this enormous retail
market.
Also, it has been consistently
experiencing a quick turnover in its stored inventory,
thus reducing the likelihood of its business holding stale
goods like Walmart (NYSE: WMT)
and Target (NYSE:
TGT). Additionally,
CostcoU+02019s gasoline division has given the company a
considerably larger moat throughout the current economic
crisis.
Therefore, as the fear of
recession amplifies further many people will be preferring to put
their money in Costco to shield their wealth.
Costco’s improving financials
Another reason to prefer the
Costco stock is its improving financials. As per the company’s
latest
update regarding its June
sales, Costco has managed
to deliver sales of $22.78 billion for the retail month of June
indicating an improvement of 20.4% from the $18.92 billion reported
during the same period last year.
Further, for the forty-four weeks
ended July 3, 2022, Costco’s net sales came at $188.34 billion
depicting a growth of 16.9% year-over-year compared to $161.09
billion generated last year.
Besides, the update also reveals
the June same-store sales of the company excluding fuel sales have
shown an impressive 13% uptrend from last year while the store
traffic has surged 10.2% year-over-year including a 13.2% and 8.3%
improvement in the core U.S. sales and e-commerce sales
respectively. The best part was despite the slowing down of the
economy an improvement was noticed in all of its merchandise
departments.
Regular dividend payer
EveryoneU+02019s wealth is being
impacted by the present marketU+02019s inflation. As a result, many
investors now favor companies that offer dividends which acts as
passive income.
Costco has a track record of consistently increasing its dividends and
paying them out on schedule. With the exception of 2020, the
company has always increased its payouts by double digits since
2012. Additionally, the improvement of its financials shows that
Costco will be able to continue paying dividends even in the
upcoming years.
Costco is currently trading at
$530, and the average consensus target for the stock is $566.62
which is a potential upside of 8.3%. Costco is, in essence, a
fantastic stock with an attractive valuation. The company has never
failed to provide its clients with a great value offering, whether
they are purchasing fuel or other things at a discounted
price.
Further, it has consistently
delivered top-notch business throughout the prosperous periods and
has shown resilience during difficult times. For this, Costco had
to barely suffer during the most recent recession in 2008 and 2009.
In light of this, the Costco stock may be a wise investment at the
moment.
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