Costco Wholesale Corporation (COST)

They have done very well and are on her watch list. They are highly valued because they execute well. They are great for the average consumer. It will probably hold up better in a downturn. They are more staple-driven. She is waiting for a pull back. It is a well run company.

The share price has been suffering. However, long term he expects they will continue to capture market share, especially with the economy improving. The issue is that the stock is trading at 26X forward PE, with an expected 10% long-term growth rate. This puts it at 2.6X Peg Ratio, which is rather high. There are some foreign exchange headwinds, as 30% of its revenues come from international markets. He would prefer the dollar stores at this time.

A great operator and great for consumers. It has been outperforming in terms of same-store sales against its peers. Trading at a very high multiple. Before she got interested she would want to see a bit of a pullback. Too expensive for her.

When you look at this and how they are different from some of their competitors, they are the low-priced leader. This is a high turnover model in terms of things sitting on their shelves, so they discount them compared to their competitors. When you own a name like this and things slow down, because their pricing is so aggressive they don’t have much of a buffer to cut prices. That can put significant pressure on the stock price. The recent drop in the stock price, he feels, is because of profit taking. This is rich on a valuation basis, and the dividend yield is not worth paying that premium.

One of the best retailing franchises globally. The only problem with the story is on a valuation basis. It always trades at a premium multiple. Trading at about 28X this year’s earnings.

Great company and they run fabulous operations. However, consumer spending in the US has not been what people have been expecting. Retail stocks have all been stellar performers, but in anticipation of the consumer spending that hasn’t come. In the near term this is probably vulnerable, along with other retailers, to a correction.

An interesting business. They actually carry much less items for sale than other grocery stores or retailers. It targets a particular market, which tends to range on the higher end of household income. As a result, they are able to price their items a little more aggressively in some areas. However, when you aggregate everything together, their prices are actually lower. Valuation is very high, but it is a very good business.

This is still a good growth story. They continue to expand and are going to go more global. Have a great business model. Another advantage they have is with the strong US$, which is impacting negatively a lot of exporting companies. But as a buyer of international goods, those costs are coming down. Valuation of US retailers is quite high right now. Trading at almost 29X estimated earnings.

The company has done a wonderful job. He likes the model. They are in a low margin business, but they have the membership fees, which is pure gravy. A nice recurring revenue. However, the multiple is quite high, which has made him shy away. He doesn’t think you can build in any multiple expansion, so it is going to have to be on internal or organic growth.

One of the best retailing operators, probably that ever existed. The stock is premium priced, trading at about 28X earnings and growing at about 11%. It doesn’t fit with his mold. He would wait for big drops in the stock because of a stumble or short-term blunder.

Their business model is somewhat unique in that they are the low cost leaders. The downside of that is that margins are half of their competitors. If the economy starts to slow down, this company doesn’t have the ability to cut prices to move inventory. The only way you can run a model with low margins, is to be moving a lot of units. If we are expecting an economic slowdown, this company will not have the ability to cut prices. Opened about 30 stores last year and are projecting to do the same this year. These store openings will have a little bit of weight on their expenditures, so some of their cash will be used there. Until these are done, there won’t be any major uptick.

Has been able to maintain its PE multiple over time. One of the few. They want you to look around within the store. This increases the ticket items. You keep adding to the basket. The number of items are in a short list, but they are the go to names. They sell at a discount and members respect this. It is rich, but deserves to be relative to other providers. They have the gas and auto add-on businesses. He would wait for it to cool off a bit to pick it up.

One of the few things in retail that does not have to compete against Wal-Mart. It is at 24 times earnings, but the visibility of forward earnings is orders of magnitude higher.

Whenever we have an experience with something we tend to use that to judge the future. You may not want to pay double what you paid for Costco last time, but if their earnings have doubled then it may be warranted. Costco will respond well to earnings. It is selling to $90k income customers average and their memberships are a recurring revenue. It is trading at about 180% of the S&P multiple so if things go bad, high multiple stocks have a lot of air under them.

He is comfortable owning it. Doing the best of the all the big box retainers. Cater to a more affluent customer base. Profit margins are picking up. They are narrow in what they offer so they are highly efficient in their operations.