Costco Wholesale Corporation (COST)

This is a great model. They basically use the membership fees as 100% of their profitability and they have 90% renewal rate. The only thing he worries about is its valuation. Trading at 27X current earnings and 25X forward earnings. Too rich for him. With the growth rates they have, he would want to get in at under 20X earnings.

Still growing. This is the preferred one over a Wal-Mart because they are doing business the right way. Likes their business model where they are trying to support growth in the economy. He would prefer it around $105-$110 range. If you are a first-time buyer, buy one half position today and then watch to see what happens in the market. Trading at roughly 20X earnings.

Wal-Mart or Cosco? Cosco turns over inventory 12 times per year. Prefers over Wal-Mart.

Great stock. Up 21% in the last 12 months. A little expensive at 25X earnings but you are getting pretty decent growth at 13%. Membership continues to move well and the quality of product is strong and their expansion continues.

You are paying for growth, so the question is, can they continue the growth. Costco format sits really well in North America but he is not sure that Europe Costco works. They are not getting their growth from emerging markets. As a value investor, this would not be his choice.

Pushing up against the upper levels of its historical multiple but it is a great story and a great franchise. Same-store sales are growing well. Demographically they attract exactly the right type of customer. Have been able to raise their fees and have a renewable rate of over 90%. Fees are straight profit.

(Market Call Minute.) Great business. Huge free cash flow generator. Would look to buy this one at the right price.

What differentiates it is the annual fees they change. That is the financial strength of this company. They are a very low margin business. They play the volume game and then overlay the fees from their members and that made them very profitable. They are well managed and he admires them. He thinks it is a good model.

Multiple is a bit high. He is looking for an entry point. Has been a tremendous performer. Special dividend made stock perform well in last week or so. Don’t chase it here but get it at 20x earnings.