This story was originally published here.
As the coronavirus from China spreads, there have been a handful of stocks that have performed well. Costco (NASDAQ:COST) hasn’t rallied like some, but it’s held up much better than most. That relative strength, combined with its high-quality business, makes Costco stock a name to take a closer look at.
Shares are about 12% off the February high. That slightly lags a retailer like Walmart (NYSE:WMT), which is down about 10.5% from its highs. It’s slightly better than Kroger (NYSE:KR), which is about 15.5% off its highs.
However, the difference here is that Kroger and Walmart hit those high this month, as investors flock to these so-called coronavirus buys.
Buy Grocers or Buy Costco Stock?
There’s a mixed feeling about these types of plays. On the one hand, companies like Walmart and Kroger cannot keep their shelves stocked fast enough amid widespread panic buying. This isn’t a situation of investors profiting and taking advantage of a pandemic. It’s simply matter of fact.
It’s not as if Costco’s shelves are stuffed full of inventory — it’s as depleted as anyone else. But Costco doesn’t make a bulk of its money on sales. Instead, it’s on memberships.
There’s a pro and a con for that model. The con is that, during times like these, Costco likely will not see the type of earnings explosion that other retailers will. The pro is that it should face less volatility, in addition to a meaningful increase in revenue and earnings.
Shares have been relatively steady despite the recent decline. Keep in mind, the S&P 500 is down about 35% from its highs, so Costco stock dropping just 12% is pretty impressive.
Comparatively, Kroger and Walmart have seen plenty of volatility over the past few weeks. For instance, Walmart stock fell 15.5% from $120 to $101.55, before rallying 25.5% to new highs near $127.50.
Costco’s Got the Growth
We’re currently enduring a heavy dose of volatility and short-term pain. It’s not often that a bear market comes roaring to life so quickly. But with Costco, the company’s business model offers shelter.
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