5 Best Spring Stocks to Buy Now

2. Costco Wholesale Corporation (NASDAQ: COST)

Number of Hedge Fund Holders: 56  

Costco Wholesale Corporation (NASDAQ: COST) is a Washington-based company that owns and runs popular membership-only retail stores. It was founded in 1983 and is placed second on our list of 10 best spring stocks to buy now. The stock has offered investors returns exceeding 24% over the course of the past year. As one of the largest retail brands in the world, Costco revenues are set to increase with the full resumption of business in the coming weeks. Some of the products that Costco is famous for include beef, organic foods, and others. 

On June 3, Costco Wholesale Corporation (NASDAQ: COST) reported that comparable sales for the month of May had increased by 22.8%, just missing market estimates of 23.4%. The company also posted a 12.1% increase in comparable e-commerce sales for the period.

At the end of the first quarter of 2021, 56 hedge funds in the database of Insider Monkey held stakes worth $4 billion in Costco Wholesale Corporation (NASDAQ:  COST), down from 61 in the preceding quarter worth $3.6 billion. 

In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ: COST) was one of them. Here is what the fund said:

“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.

Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”