Costco Wholesale Corporation (COST)

He has owned this in the past. It defies Amazon and the internet because people love the shopping experience at Costco. Its price keeps rising--this is not a value stock and so it is not for him and his clients, but it is an amazing retailer. This is a stock that someone who likes growth companies can own because it executes its business fabulously. They make their money on the memberships rather than on the margin on the merchandise they sell.

Pretty expensive right now. This segment of US retail doing well. Difficulty is that Costco is defensive, and the multiple is high for that at 32x earnings. Really have to execute every quarter. If you have a positive view on US consumer, look at Couche-Tard or Dollar Tree. (Analysts’ price target is around $212.)

At start of year, dropped in January with rest of market. Has since made new highs. Sideways motion over past 3 years, lot of struggling. Breaking into a new phase again. Use a 30-40-50 day moving average as an exit point, then move on to something else. Have to be cautious with a stock like this. Good fundamentally compared to the industry.

It is always going to be too expensive if you are a value investor. It is always 25 times PE or more. But the shares continue to go higher and higher. It is at 31 times right now. They continue to post strong sales, up 12% year over year.

(A Past Top Pick on May 23, 2018, Up 10%) It's strong May-June, and just reported good earnings. It's in consumer staples, but it doesn't quite fit there because most revenues come from memberships fee. Given this, it's a stable stock. It's now above its trend line and is at the top end of its relative strength index. However, it's starting to be overbought.

(Past Top Pick, June 29, 2017, Up 32%) He bought this when Amazon announced it would get into this space, so he bought it cheap. he recently sold it at a profit. It's a little expensive now. Buy on a dip. High valuation despite good same-store sales. If Costco improves their digital sales, they will compete well against Amazon.

Their business model is unique as the profit margin is only half of their competitors. Their memberships are a nice recurring revenue stream. If the economy slows, they do not have the ability to cut prices. He has stayed away because of the high multiples. The P/E ratio has not traded below 25 times for the past 10 years.

There is a strong seasonal pattern from end-May to end-June. Earnings will be announced next week. It is a strong growth company and has avoided the selloff of the consumer staple sector. Technically, it is still demonstrating higher highs and higher lows. Yield 1.16%. (Analysts’ price target is $208.75 )

It is interesting. He has liked the company for several years but it has always had a rich valuation. If you are a growth investor and can buy this high multiple stock and it will do well. They have positive quarter to quarter earnings numbers. 25% of revenue comes from memberships and have an over a 90% renewal rate as recurring revenue. When you have so many members, how many more can you attract? They have done well to weather retail threats. They run at half the profit margin to their competitors. The recent membership increase is a positive if you are a shareholder. There were 19 Million card carrying members in 2016.

It’s in a position to benefit from tax cuts in the U.S. Shares have performed well, it’s a great business to own, easy to understand. If you do own it, you are good to continue to own it. The problem with Costco is that it is very expensive relative to Canadian grocers like Loblaws, though it is set to benefit from tax cuts.

For a retailer to survive, you need to be unique and Costco is immune from Amazon. It is a great company, but he does not own any retailers.

Sold this about a week ago, as he felt, from a valuation perspective, it started to get a little expensive for him. He still loves the name and thinks they are doing very well. But it’s trading at 28X earnings with a growth rate of about 10%. Long-term this will do fine, but he just didn't want a lot of higher-priced names in his portfolio. If this gets cheaper, he'll be back in.

This company has yet to disappoint. Looking at the long-term chart, this just keeps going up. Same-store sales for December were double digits. It has an enormous moat around its business, and he doesn't know if Amazon will be able to penetrate it. It’s always going to look expensive.

It is not a value stock. If you are a long term investor then it is still relatively immune from online shopping. It is an experience and will continue to be the case.

Would you get in at this level? He would get it, it’s a great company one of the most consistent he has seen. Earns 13-14% return on invested capital. You need to pay up for consistency. Stock has gone up, it’s not super cheap but it’s not out of the stratosphere just yet so you can still hold it.