3 Reasons to Buy Costco Stock Like There's No Tomorrow

Time to search the waiver wire. That's fantasy football talk about trying to pick up some bargains, players not signed by other teams that have turned out to be interesting prospects. It's a time-honored tradition, especially in a game where wide receivers get banged up pretty regularly, and as you can see from your screen, that's been the case both in the NFL and in stocks since this season began. Let's go hunting for some new wide-outs to augment your line-up because of the carnage.

I'm liking some that we picked last week -- Okta (OKTA), ServiceNow (NOW), and Salesforce.com (CRM) -- as much as ever, especially because they have been hammered as part of the market-wide rotation.

But let's start with Costco Wholesale (COST). This one's been down and out ever since the company allegedly guided down numbers last week. I have parsed every word of what was said at Goldman Sachs and I come back with this: The company operating income growth model is intact and the issues that brought the stock down last week were below the line and tax related. I know CEO Craig Jelinek took a lot of heat for not disclosing this stuff when he was on Mad Money, but it was purely bookkeeping and what matters is the growth rate was kept unchanged.

And as far as the SEC issues that just came up relative to disclosure, a story that pulverized the stock late in the day? There were 200 other companies that were similarly flagged in a routine accounting inquiry. Only Costco got the headlines. This non-story also hurt others in the retail industry, including Walmart (WMT) and Target (TGT). It was a nothing burger plain and simple.


I think that Sanjay Poonen, the chief operating officer of VMware (VMW), made a ton of sense last night when he talked about how recent acquisitions, Pivotal for containers and Carbon Black for cyber security, would be great additions. I had been skeptical given that Pivotal seemed like a Dell castoff. I don't think that now. I also believe that the Dell-Crowdstrike relationship is going to be severely crimped by the Carbon Black acquisition. No wonder VMware has started to rally.

Finally, after parsing through all of the comments we heard last week from the Splunk (SPLK) CEO, Doug Merritt, I believe that we are getting a chance to buy a stock of a premier analyzer of data that would make a ton of sense as an acquisition, post the Tableau Software purchase by Salesforce, or just as an outright buy because of the need for as much analysis as possible. Splunk is real -- and this marketplace is acting as if it is fake.


Two other potential waiver-wire grabs: Shopify (SHOP) and Chipotle Mexican Grill (CMG). Shopify just made a terrific acquisition, the $450 million purchase of 6 River, which is a fulfillment expert that can make delivering products for its small-to-medium-size customers equal to that of Amazon (AMZN). But the stock's in a downtrend -- it has now given up 70 straight points -- and who knows when the bottom is reached, but you sure aren't buying it at the top.

Chipotle? When you are the number one performer in the S&P 500 and you hit a wall for no good reason other than a rotation, it is bound to scare people and foment reasons for the decline. There aren't any. It's just been too hot in a market where Wendy's (WEN) gets hit on starting up breakfast and McDonald's (MCD) gets hurt because it competes against Wendy's. Oh, and Chipotle also got caught up in this so-called SEC comment inquiry, the same inaccurate story that helped tumble the stock of Starbucks (SBUX) late in the day. Not only is there nothing wrong at Chipotle, its business seems to be accelerating from new menu items and advertisements.


When you get a chance to buy the best of the best down almost 10%, that's like stashing a wide receiver over a bye week. I know it can go lower, but does that mean it's getting cheaper? Despite the $700 price tag, you bet it does.

Now, let's dive into the three reasons why you should consider buying Costco stock like there's no tomorrow:

1. Membership Fee Structure: Costco's membership fee structure is a significant contributor to its revenue growth and profitability. The company charges an annual membership fee, which provides customers with access to its warehouse stores and online shopping platform. This fee structure allows Costco to maintain a low-price strategy, as it generates revenue from both sales and membership fees. In comparison to its competitors, Costco's membership fee is relatively low, which appeals to price-sensitive consumers. Additionally, the membership fee provides a steady stream of revenue, which helps to offset the company's low profit margins. This allows Costco to offer lower prices than its competitors, which can lead to increased customer loyalty and market share.
2. Private Label Products and Exclusive Brands: Costco's private label products and exclusive brands, such as Kirkland Signature, play a significant role in driving customer loyalty and profitability. These products offer customers unique and high-quality products that are not available elsewhere, creating a strong pull factor for customers. Additionally, Costco's private label products are often priced lower than national brands, providing customers with a significant value proposition. This affordability appeals to budget-conscious shoppers, who are more likely to remain loyal to Costco. Furthermore, Costco's private label products and exclusive brands contribute to the company's profitability by increasing sales volume and enhancing profit margins.
3. Employee Satisfaction and Compensation: Costco's focus on employee satisfaction and compensation has a significant impact on its operational efficiency and customer experience. The company's high wages and benefits packages, which are among the best in the retail industry, contribute to a motivated and loyal workforce. This, in turn, leads to lower employee turnover rates and reduced training costs, ultimately enhancing operational efficiency. The positive work environment and high job satisfaction among Costco employees have a direct impact on the customer experience, as happy and motivated employees are more likely to provide better customer service. This leads to higher customer satisfaction and loyalty, which is evident in Costco's consistently high customer satisfaction scores and net promoter scores (NPS).

In conclusion, Costco's membership fee structure, private label products and exclusive brands, and focus on employee satisfaction and compensation make it an attractive investment opportunity. Despite recent market fluctuations, the company's fundamentals remain strong, and its long-term growth prospects are promising. As an investor, you should consider buying Costco stock like there's no tomorrow, as the company's unique business model and competitive advantages position it for continued success in the retail industry.