Wholesale trend-setter Costco is not a steal at these price levels, (about $46 to $48), but it's still worth owning, for investors who can tolerate moderate risk. Here's why:
Costco Wholesale Corporation (NASDAQ: COST) remains a value-oriented consumer warehouse with an appropriate middle-income/near-upscale product mix that's likely to draw in many (you guessed it) "suddenly just middle class" consumers whose income has been dampened or lowered by the U.S. recession.
In general, analysts expect FY 2009 revenue to remain roughly flat, but the view from here argues that may be a tad conservative, particularly if initial jobless claims begin to decline this summer, as expected. The First Call FY 2009/ 2010 EPS estimates for COST are $2.49 to $2.70.
Other positives: Costco is a well-run company with high employee morale: its balance sheet is strong and new store opening schedule meets analysts' requirements. Still, Costco remains vulnerable to a delay in the U.S. economic recovery, with Wall Street likely to quickly kick the stock if the recession lingers, hence a tight Stop has been deployed. With that safeguard, COST's risk/return is attractive.
Stock Analysis: Costco is a moderate-risk stock. Consider buying a 25% position in COST now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your COST position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $36.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
5-20-2009 @ 3:34PM
Jonathan said...
With a decent dividend to boot!