Stocks were flat in early trading, coming off of a sharp rally yesterday where the Dow stacked on 2.4%, the S&P 500 added 2.76%, and the Nasdaq surged 3.11%. Investors are expecting choppiness as the earnings season unfolds, and they search for clues on how skyrocketing inflation has affected companies’ bottom lines.
“Despite Tuesday’s more positive trading session, we don’t expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy, and political risks,” said UBS’ Mark Haefele.
Consumer prices in the U.S. rose 9.1% year over year in June — the fastest pace of inflation in 41 years. Some market watchers are pointing to falling oil prices this month as an indicator that consumer inflation may have finally peaked. Still, many of the pros are not convinced.
“Inflation is not peaking. Not even by a little. Gasoline is down because traders are pricing in a recession, not because rates are rising,” said Keith Fitz-Gerald, principal at research firm Fitz-Gerald Group. He believes more significant rate hikes are merited even if it leads to market dislocation. “It’s simply time to pay the piper for years of badly conceived cheap money policies,” he added.
As inflation remains hot and the Federal Reserve looks to continue on its tightening path, recession concerns are intensifying. Many investors seek companies from defensive industries that are renowned for being resilient during times of economic weakness.
Today we’re highlighting a retailer that many on Wall Street say will be “absolutely essential” as inflation forces consumers to tighten their belts. What sets this consumer staples mega-cap ahead of its peers is its winning business model that will likely help the company flourish when the market begins to recover and tremendous cash flow to help sustain the business through rough patches.
With inflation at a 40-year high, many consumers are looking for ways to save on everyday essentials. Membership-only big-box retail giant Costco (COST) is the go-to when consumers want to buy in bulk. Over the past year, COST share price has gained 26%, outperforming its retail peers, evidenced by the performance of the SPDR S&P Retail ETF (XRT), which has dropped 32% over the same period.
The company also has tremendously reliable cash flow compared with other retailers, with some 67 million paid Costco memberships at roughly $60 per pop in annual dues. COST enjoys a robust $4 billion in yearly sales rolling in simply from renewals. It currently boasts a 92% renewal rate for its 114.8 million-and-growing base of cardholders. In the latest quarter, the company sustained strong 16% sales growth and grew net income by 37%. Same-store sales of 14.4% were impressive, especially as the company lapped its stellar pandemic performance.
At 34x forward earnings, COST price may still be high, but considering the upside potential based on projected membership cost increases, the high cost could prove well worth it. Costco has a history of raising membership fees every five to six years. The last fee increase was in June 2017. In May, the company confirmed that it does not have plans to hike its membership fee right now, given the current macro environment. However, investors will likely enjoy a boost from higher membership fees in the not-too-distant future.
Should you invest in Costco right now?
Before you consider buying Costco, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not Costco.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
Click here to watch his presentation, and decide for yourself...
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
Click here to find out the name and ticker of Keith's #1 pick...
