Costco Stock Can Be An Inflation Beater for Investors
InvestorPlace - Stock Market News, Stock Advice & Trading Tips Concerned about inflation and its toll on the American consumer? You can bulk up your defensive investments with a position...
During the initial onset of the novel coronavirus, most large-cap businesses struggled, and Costco Wholesale (NASDAQ:COST) was no exception. Along with the major market indexes, COST stock lost value quickly.
Soon afterward, though, many defensive stocks staged a swift comeback. This showed how a company Costco can remain rock-solid during times of crisis, and for months afterward.
As the Covid-19 remains, it's clear that the pandemic isn't over. Yet, there's another crisis in the financial headlines right now, and its impact on the American consumer is profound.
Amid this worrisome backdrop, however, Costco is actually thriving and there's data to prove this. Moreover, a famous value investor recently gave his verbal stamp of approval to Costco, and this should provide extra motivation to consider a long position.
COST Stock at a Glance
Momentum-focused traders should appreciate the long-term upward trajectory of COST stock. Impressively, it ascended from $315 in March of 2020 to as high as $571.49 in December of last year.
Dip-buyers should also like this stock, as it recently pulled back to $512. Buying a short-term dip within a long-term uptrend is a foundational strategy for many successful traders.
As an added bonus, Costco pays out a forward annual dividend yield of 0.62%. Granted, this probably won't make you wealthy overnight, but reinvesting dividends over the years can provide enhanced returns through compounding.
Finally, we should observe that COST stock has a five-year monthly beta of 0.68. In other words, it typically moves slower than the S&P 500, including during market downturns. This should provide comfort to safety-minded investors.
Surviving and Thriving
With an annualized U.S. Consumer Price Index (CPI) print of 7.5% coming out for last month, there's no denying that inflation is a serious problem in America.
Now, you might be led to assume that U.S. consumers have been spending less because so many items are more expensive. This might be true when it comes to discretionary (luxury) items, but Costco specializes in providing basic consumer goods.
Indeed, Costco's January sales results demonstrate the company's resilience during inflationary times. Specifically, Costco reported net sales of $15.76 billion for the retail month of January, marking an increase of 15.5% year-over-year (YOY).
The results also look great when we extend the look-back period. Thus, for the 22 weeks ended Jan. 30, 2022, Costco reported net sales of $92.10 billion, up 16.4% YOY.
Not only that, but Costco's "comps" (comparable or same-store sales) were 14.1% during the retail month of January in the U.S as well.
Hence, it's safe to conclude that people are still shopping at Costco even if they're concerned about inflation. Heck, they might be shopping there even more because Costco provides essential goods at a discount.
An Absolute Titan
You might know him as Warren Buffett's lifelong pal. Or, you may recognize him as a renowned authority in the world of value investing.
One thing is for sure, though: Charlie Munger knows a great deal in the markets when he sees it. And, it's evident that he likes COST stock as a long-term holding.
Munger doesn't just praise any business, but he was recently effusive in regard to Costco:
"…[I]f I were investing money for some sovereign wealth fund or some pension fund, and I had a 30-, 40-, 50-year time horizon, I would buy Costco at the current price… I think it's that strong an enterprise and that admirable a place."
That's a ringing endorsement coming from a financial-market living legend. Furthermore, even if Munger is an old-school value investor, he understands the importance of Costco having a robust online presence.
"Costco is going to be an absolute titan on the internet, because it's got curated products that everybody trusts and huge purchasing power on a limited number of stocking units," Munger explained.
Overall, Munger's praise is meaningful and makes a great point. Costco, through both its brick-and-mortar and online presence, can continue to generate strong sales for many years to come.
Of course, no one should buy a stock just because Munger recommends it. You have to conduct your own due diligence and form your own conclusion about Costco.
Still, the company's January sales data points to a retailer in growth mode. Therefore, COST stock deserves your attention whether you're a momentum trader, value investor or both.
On the date of publication, Louis Navellier had a long position in COST. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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