Why I'm Shorting Costco

Costco (COST) is actually a company I like, but as I was scanning for "breakouts" over the weekend, I noticed a massive spike in the stock price last week. Same store sales came in at -2% rather than the expected -5% (maybe 6%), hence the big move. So it was on my radar based on the action late in the week. Then this morning, Morgan Stanley piled on with an upgrade creating another gap up.

It's all starting to remind me of a decade ago when valuations meant nothing. I respect this company, but we are now upgrading a mass market retailer at over 20x forward estimates. Granted, Whole Food Markets trades well over this value so it's all relative. it is going to be a very interesting era as we seem to have an economy that doesn't require all the money being printed, hence it will go into blowing asset bubbles, creating valuations that (if the Fed does its job properly) will let us enjoy a repeat of NASDAQ 1999.

But for now with 2 gaps in the chart, I am going to put on half a short position (2.5% stake) in Costco (COST) at $56.60. I'll add the 2nd half on any move to near $60, or below $54. Target $51.

[please note: pure momentum traders will be taking the other side of this trade - they love these type of charts]

Short Coscto in fund and personal account

Comments

[LKofEnglish:]

keep us updated on how much money you make on the trade and don't lie about it this time. needless to say i think you should be hangin' from a tree for being a short seller. not to say your gonna be wrong tho.

Sep 08 06:55 PM

[TraderMark:]

"don't lie about it this time"

which short have I lied about? just curious - I post all my major entries and exits in and anyone can go and look at my portfolio at any time.

simulator.investopedia...

On Sep 08 06:55 PM LKofEnglish wrote:

> keep us updated on how much money you make on the trade and don't
> lie about it this time. needless to say i think you should be hangin'
> from a tree for being a short seller. not to say your gonna be wrong
> tho.

Sep 08 08:56 PM

[fosback:]

LkofEnglish - you make a very irresponsible statement.

If you knew what you were talking about you would know that TraderMark is one of very few people here who is an open book with his portfolio. Not to mention an excellent contributor with well thought out viewpoints.

Sep 08 10:38 PM

[John Galt:]

I was actually considering going long Costco. I was looking at Walmart/Costco and was leaning more to Costco, but I see that you are looking to ride it from 56 to 51 which sounds reasonable/possible/pr...

I think Costco is a decent recessionary/depressio... stock longer term though. If we are going to have a "new normal", the low cost provider sitting on a huge cash position might not be such a bad thing, but I agree, I'd like to buy it cheaper.

Sep 09 09:17 AM

[reval:]

I bought Costco several years ago at 34 and plan to hold it for the foreseeable future. I like their long term attitude toward employees, customers, and shareholders (consistent dividend increases). It is a quality company with steadily growing earnings. Of course, revenue and income do get affected by gasoline sales and the general economy. But I personally like supporting companies with long term viewpoints and high standards. There are so few of them these days.

Sep 09 09:36 AM

[LoveShorting:]

Trader? No, Professor Mark: Thank you for another great educational moment.

Sep 09 10:39 AM

[BigOlDave:]

I thought I was a genius for picking Wal-Mart (WMT) before the 3/09 dip -- WMT held up well. Now the market has caught up to it, which still makes no sense to me.

Investing in (COST) instead of (WMT) never made sense and still doesn't even tho it's caught up with Wal-Mart too. Just on the basis of P/E, WMT seems fairly-/under-valued and COST looks over-valued.

Good short call, Trader Mark. Unfortunately, I'm a long-only player.

Dave

Sep 09 03:56 PM

[tripleblack:]

I personally shop at Costco, and like it as a store, but I agree, its relatively overpriced right now.

Sep 09 08:39 PM