Costco is on-track for market share gains

Posted Sep 19th 2009 10:40AM by Joseph Lazzaro
Filed under: Costco Wholesale (COST), Stocks to Buy

Costco's stock has trended up nicely, from $47.21 when first recommended on May 19, 2009, hence it's not as cheap as it was then, but a case can be made to establish/add to a position on a pull-back to $53-55. Therefore, I'm reiterating my Buy rating.

Costco (NASDAQ: COST) remains a value-oriented consumer warehouse with an appropriate middle-income, near-upscale product mix that's likely to draw in many "suddenly just middle class" consumers whose incomes have been constrained/lowered by the current economic era. Translation: market share gains for COST.

A double-dip recession (obviously) would weigh on Costco; otherwise, the company's stock is likely to record an out-sized gain of 25% or more from this level, assuming a sustained recovery. The First Call FY2009/FY2010 EPS estimates for COST are $2.47 to $2.72.

Stock Analysis: Costco is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in COST now on a pull-back to $53-55. Keep in mind that the shares may not retreat to that level. Then buy another 25% position 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 before December 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.

Tags: COST, Costco