Costco Wholesale Corporation (COST)

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.

(A Top Pick Aug 18/16. Up 5%.) Unloaded this. Doesn't like the consumer staples/consumers discretionary space to a certain degree.

(A Top Pick July 20/17. Up 5.53%.) Had picked this because it was vastly oversold, and still is. With the Amazon (AMZ-N) Whole Foods acquisition everybody panicked and sold everything that sounded retail. This company has its own formula, and will not be affected by Amazon as much as people thought. It is still a buying opportunity and could go much higher in the next year or so.

Covered call? This has some challenges because of Amazon (AMZN-Q). They were hit when Amazon announced their takeover of Whole Foods. He likes the company and thinks it is OK longer-term. If he were going into it, he would Buy it and Sell an At the Money Covered Call.

He bought it shortly after the announcement of AMZN-Q announcing the purchase of Whole Foods. It is only one of the few with positive same store sales. If they bring up their online shopping model the will compete quite well.

A great company. On his watch list. When he bought it, it was at the lower end of its valuation range. It is currently in the middle of the range. One of the few retailers that can generate really respectable same-store sales.

He doesn’t like the sector. A lot of the hit came from the Amazon acquisition of Whole Foods. This company probably has the most defensible business model of the group. Technically it broke down and is in a negative group for him, so he wouldn’t be there. There are a lot of headwinds coming.

Amazon acquisition of Whole Foods could change the landscape for all retailers, however, it hasn’t happened yet. The acquisition is years away and it has to get through regulation. In the meantime, this company is performing financially, and nothing has changed in their unique story. The drop in price is parabolic to the downside and this is a good entry point. (Analysts’ price target is $185.)

Thinks this is feeling the Amazon (AMZN-Q) affect. Every retailer known to man is at a 52-week low now. It doesn’t matter if you are the most successful retailer like this company or the crummiest one, you are just getting beaten up. There is not enough margin of safety in their evaluation for him to get excited. At 25X earnings, it is certainly a lot cheaper than it has been.