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Adding To Position in Costco on (sic) Analyst Warning (COST)

Posted on | November 3, 2008 Time: 8:44 pm |

I’ll be applying the last little bit of cash left in the Secular Trends Model Portfolio to add to the Costco Position, adding 600 shares at $53.04; shares are down 7% today on a warning from PiperJaffray. I liked the stock in the mid-$60’s, and I love it in the mid-$50’s.

The analyst note contents that October comps will be only 4-5% rather than the 5-7% we’ve seen in recent months, mainly because of lower gas prices. While this may be true, Costco’s gas sales are really just a loss-leader to drive traffic into the stores, and is essentially a break-even business.

Even though the valuation on Costco stock may be higher than anything else in the portfolio, it’s the most deserved premium multiple I know of. The balance sheet is pristine, and so are the cash flows thanks to membership revenues of $1.5 billion plus annually that float untouched down to the bottom line.

Earlier today I reiterated my distaste of anything consumer-related, but Costco has more potential positive catalysts in this environment than negative ones.

Ryan Barnes

disclosure: author does not hold positions in the companies mentioned.

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Category: Grocers, Retail, Secular Trends Portfolio
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