New Trade for December 22nd, 2020

Stocks are cautiously mixed this morning after Congress passed a combined $900 billion in coronavirus relief and a $1.4 trillion government funding package. 

There is favorable news that Pfizer’s vaccine works on the new highly contagious coronavirus strain cropping up in the U.K.  That should give everyone hope that next year will be much better — for our health, for our economy and for our sanity.  

If you’re looking to rotate some of your 2020 earnings out of fashionable “stay-at-home” e-commerce plays and into consumer staple stocks in 2021, consider companies that aren’t simply dependent on pandemic stockpiling to boost performance.   Our trade alert for today highlights one such company. 

Costco Wholesale (COST) has long defied the general downtrend for retailers for a host of reasons.  For starters, its bare-bones wholesaling operation doesn’t require the same attention to detail in its storefront.  Warehouses in the suburbs are in fact the ideal over chic urban real estate, and its dominant discounting model has won it tremendous loyalty among frugal shoppers.  

It also has tremendously reliable cash flow when compared with other retailers.  Consider that with some 58 million paid memberships at roughly $60 per pop in annual dues.  COST also enjoys a robust $3.5 billion in annual sales rolling in simply from renewals.  

It should be no surprise that Costco has not just weathered the pandemic, but thrived amid it.  Since the wholesaler provides staples and groceries it has seen the same uptrend as other stores in this category — but as it also sells items like flat-screen TVs and propane grills that have been in high demand amid the stay-at-home trend.  As a result, COST stock has surged 25% this year compared with 13% for the S&P 500 in the same period.  

Looking to fiscal 2021, the company expects revenues to grow by a little under 10%, and earnings to expand by low double digits.  That means these gains are part of a sustained uptrend.  

Of 23 analysts offering recommendations for COST, 14 rate the stock a Strong Buy, 3 rate it Buy and 6 rate it Hold.