Costco Wholesale Corporation (COST)

It just reported weakness in sales, hard goods and furnishing especially. Shares fell $11 yesterday. But they have a track record of selling quality products at good prices. it's well-run and share weakness won't last that long. He's long owned this and still likes it.

Williams is bullish, based on historic market patterns, specifically 2009 when markets bottomed then bounced after the 2008 crash. In 2008 and 2022, the Nasdaq was much weaker than the Dow and S&P, though root causes are very different. In 2009, the market bottomed and went on a multi-year run. 2023 won't necessarily repeat that recovery, but if this pattern continues, it will be good for tech. Williams notes that major rallies and declines happen in the same times of the year. He sees these patterns in the S&P, Dow and Nasdaq charts historically back to 1962-3, which sees monster moves higher. He sees Easter rallies in retail between late March and early April. The leader here is Costco. The chart shows Costco and Walmart bottoming first among the big box retailers then recovering first. Costco rallies 75% of the time in this point of the cycle, lasting three months. Costco is coming out of a seasonally weak period with lower lows in March vs. the start of the year. But in 2023, Costco is doing better than its seasonal pattern.

There's evidence of the consumer trading down, and they had a solid quarter. Shares are up 7% YTD. Has a concern of weakening in the lower-end consumer, though.

Attractive, but always too expensive given the growth rate. Trades at a 35x multiple. Business model is highly predictive, where 80-90% profit comes from membership fees. But this is priced into the stock. Once economy improves, expect a membership fee increase.

The stock has been sideways for several months, but the stock is resilient through past cycles, so he likes it. A retail you want if there's a recession.

He sold it in late January. It was trading at a high 33x and growth was slowing. Free cash flow margins were cut in half. They do have a loyal following, but they can't sustain price increases. He doesn't want to own big-box retail and prefers luxury.

He doesn't consider them big-box retail, because they have a unique brand. Can't see more competition coming besides Walmart. He'd loved to buy it when the PE declines, like to 25x. Incredible management.

SS sales are still up 5%, but they missed on large discretionary items which is consistent with Walmart. Member renewal rates are still over 90% globally though. Management's execution commands a premium multiple.

It reports Thursday. It has a bad habit of declining on any news, even good, and it will be worse because we're in a retail bear market. Strong stomachs can buy this if shares fall after the quarter.

Great company, but has always been expensive with a multiple in the low-mid 30s. Membership fees haven't been raised, and they don't want to shock the consumer during weak economic times. 

Remains above its 200-day moving average. Strong customer renewal rate. Pays only a 1% dividend, but great at selling a limited number of products. Customers buy bulk items. It's the only staples stock he owns, but likes this for its growth.