Costco: More Positives than Negatives

Yesterday, I decided to apply the last little bit of cash left in the Secular Trends Model Portfolio in order to add to the Costco (COST) Position.  I added 600 shares at $53.04 as shares were down 7% on Monday 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 said that October comps would only be 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 really are just a loss leader to drive traffic into the stores, and essentially, it is a break-even business.

While 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 thanks to membership revenues of $1.5 billion plus annually that float untouched down to the bottom line, so are the cash flows.

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

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Disclosure: Author does not hold a position in COST; shares are held in EpiphanyInvesting Secular Trends Portfolio.