Is Costco Wholesale the Perfect Stock for a Recession?
Charlie Munger favorite Costco Wholesale (NASDAQ: COST) could be the perfect stock for a recession.
Currently Costco offers growing revenues, a growing gross profit, and a great dividend. In addition, Costco thrives during crises such as the ongoing Coronavirus scare. News reports show, frightened shoppers are picking Costco stores from coast to coast bare because of the Coronavirus.
For example, SILIVE found lines outside a Staten Island Costco, after authorities reported a case of the COVID-19 vrius in the New York City borough. In addition, Costco’s Chief Financial Officer Richard Galanti claims sales increased during February because of Coronavrius, Business Insider reports.
Demand is so high, Costco will put limits on the quantities of some items customers can buy, Galanti told analysts. “Members are turning to us for a variety of items associated with preparing for and dealing with a virus such as shelf stables, dry grocery items, cleaning supplies, Clorox and bleach, water, paper goods, hand sanitizers, sanitizing wipes, disinfectants, health and beauty aids,” Galanti said on 5 March 2020.
How Much Money is Costco Making?
Moreover, Costco is profiting from those sales and growing. For instance, Costco reported a gross profit of $5.016 billion on 29 February 2020.
Importantly, Stockrow gave Costco a revenue growth rate of 10.39% for the quarter ending on 29 February 2020. Consequently, Costco’s gross profit grew from $4.807 billion on 30 November 2019 to $5.016 billion on 29 February 2020. Additionally, Costco’s revenues grew from $37.04 billion in November 2019 to $39.07 billion in February 2020.
As a result Costco reported a quarterly operating income of $1.266 billion and a common net income of $931 million on 29 February 2020. Those figures grew from $1.061 billion and $844 million on 30 November 2019.
In contrast, Costco’s cash and short-term investments fell from $10.02 billion in November 2019 to $8.715 billion in February 2020. Unfortunately, Costco did not reveal its cash flow figures for the last quarter.
Costco Keeps Growing
Costco’s ecosystem keeps growing and growing. For instance, the number of Costco members worldwide grew from 94.3 million in 2018 to 98.5 million in November 2019, Statista estimates.
Moreover, Costco operated 543 warehouses in the United States, 108 warehouses in Canada, 39 warehouses in Mexico, 29 warehouses in the United Kingdom, 16 warehouses in South Korea, 26 warehouses in Japan, 13 warehouses in Taiwan, two warehouses in Spain, one warehouse in China, and 11 warehouses in 2019, Statista estimates. In addition, Costco operates one warehouse in Iceland and one warehouse in France.
Therefore, Costco operated 779 warehouses or clubs worldwide last year. In contrast, Walmart (NYSE: WMT) operated 11,766 stores worldwide in 2019, Statista estimates.
However, Walmart reported revenues of $141.671 billion for the quarter that ended on 31 January 2020. Meanwhile, Costco (NASDAQ: COST) reported quarterly revenues of $39.07 billion on 29 February 2020.
Costco Investor Relations claims the average Costco store generated $105 million in sales in 2019. Consequently, Costco is one of the most profitable retailers around.
Is Charley Munger right about Costco?
Warren Buffett’s sidekick Charley Munger owned 165,736 shares in the Costco Wholesale Corporation (NASDAQ: COST) on 24 October 2019, Yahoo! Finance estimates. Moreover, Munger bought an additional Costco shares on 22 October 2019.
In addition, Berkshire Hathaway (NYSE: BRK.B) owned 4.3 million shares of Costco on 25 February 2020, Yahoo Finance! reports. Therefore, Buffett loves Costco as much as his friend Munger.
In addition, Berkshire Hathaway (NYSE: BRK.B) owned 4.3 million shares of Costco on 25 February 2020, Yahoo Finance! reports. Therefore, Buffett loves Costco as much as his friend Munger.
I think Munger and Buffett are right about Costco. This company grows and it makes money during chaotic and catastrophic times. Sadly, I think Costco’s business could grow because the number of disasters such as hurricanes and pandemics will increase over the next decade.
I think the number of hurricanes and fires will increase because of Climate Change. Meanwhile, the number of pandemics could increase because of rising global travel.
Costco’s Wonderful Dividend
I think Mr. Market overpriced Costco Wholesale Corporation (NASDAQ: COST) at $293.56 on 16 March 2020.
However, Costco still pays its wonderful dividend. For instance, Costco paid a 65₵ quarterly dividend on 6 February 2020. As a result, Costco paid a dividend yield of 0.86%, an annualized payout of $2.60, and a payout ratio of 29.66% on 16 March 2020.
Dividend.com reports that Costco’s dividend has been growing for the past 16 years. Thus, Costco’s dividend kept growing through the Great Economic Meltdown of 2007-2008. Hence, I think Costco is a recession proof stock.
Even though I consider it overpriced, I think Costco is a great stock for recessions because of its high margin of safety. If you are looking for a safe stock to help you survive the next recession, Costco (NASDAQ: COST) could be a good choice.
