We recently compiled a list of the Jim Cramer’s 10 Go-To Stocks for Success. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against Jim Cramer’s other go-to stocks for success.
In a recent episode of Mad Money, Jim Cramer offers a perspective on Nvidia and its recent market behavior on Wednesday’s episode of Mad Money, presenting a straightforward analysis of the company’s stock performance and the broader implications for investors. Cramer notes that owning the company’s stock was easier when the company was less well-known. As the company has become a major market focus, it’s attracted significant attention and criticism, which is evident after its recent financial report.
“Once you get this big, to the point where you become the focal point of the entire stock market, you’re going to have a target on your back. And that’s exactly what I think happened tonight to the stock after the firm reported a fine and dandy set of numbers. But fine and dandy is no longer enough for this incredible company.”
Despite reporting impressive numbers—122% revenue growth, a 152% increase in adjusted earnings per share, and a $50 billion buyback— the firm’s stock fell after hours. This reaction reflects high expectations that may have become unrealistic. The stock market as a whole suffered due to pre-quarter jitters surrounding the company, with declines in major indices like the Dow, S&P 500, and Nasdaq Composite. The drop in the firm’s stock price after the earnings report, coupled with concerns about its influence on the broader market, has led some to call this period the GPU maker’s “buzzkill quarter.”
“The Dow declining 59 points was bad, the S&P losing 0.6%, and the Nasdaq Composite 1.12%. And now, with the stock sinking after hours, we could be in for a hangover from what they’re already calling the company’s buzzkill quarter. But the people saying this might as well be having a watch party—yes, there was one—but there’s nothing to celebrate here. Move on.”
Cramer emphasizes that the company’s role in artificial intelligence is significant, but its overemphasis has become a burden on the market. The company’s market capitalization has skyrocketed from around $500 billion to over $3 trillion in just 18 months. Cramer suggests that the company’s immense importance might be overblown and that a recalibration might benefit the market.
“We know that artificial intelligence is the way of the future, and it’s the best bet on AI. But the company has become an albatross around the market’s neck because no one stock should be a proxy for the future of the S&P 500. Yet, that’s exactly what’s happened as the company has grown from around $500 billion in market cap just 18 months ago to more than $3 trillion now. Maybe after tonight, it will shed that millstone—like Apple did. You know what? That would be a godsend for all of us.”
Cramer expresses frustration with how quickly concerns about the company have spread to the broader tech sector, although he acknowledges that companies like Salesforce reported positive numbers. Cramer concludes by advising investors to diversify their portfolios beyond just tech stocks. He suggests that while diversification might seem less exciting, it is a crucial strategy to mitigate risks associated with over-reliance on a single sector or stock.
“It felt like insult added to injury when there was no injury to the company. It will muddle through and recharge at its next iteration. Blackwell goes boring, and we see renewed expectations. I hope they don’t get excessive like they were tonight.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed ten stocks he believes have significant growth potential. It also looks at how hedge funds view these stocks and ranks them based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Investors: 71
Costco Wholesale Corporation (NASDAQ:COST)’s membership-based model provides a steady and recurring revenue stream, supported by its large base of over 127 million global cardholders. By focusing on high-quality products at competitive prices, Costco Wholesale Corporation (NASDAQ:COST) has built strong customer loyalty and high membership renewal rates, which exceed 90% in the U.S. and Canada. This approach, combined with Costco Wholesale Corporation (NASDAQ:COST)’s efficient operations and large-scale purchasing power, allows it to pass savings on to customers, enhancing its value and driving steady sales growth.
In its Q4 2024 earnings report, Costco Wholesale Corporation (NASDAQ:COST) reported net sales of $78.94 billion, a 9.4% increase from the previous year. Costco Wholesale Corporation (NASDAQ:COST) achieved a net income of $2.16 billion, or $4.91 per diluted share, surpassing analysts’ expectations. This performance reflects Costco Wholesale Corporation (NASDAQ:COST)’s effective cost management and ability to maintain strong pricing power amid inflationary pressures. Its solid cash position also provides flexibility for continued growth investments.
Costco Wholesale Corporation (NASDAQ:COST)’s expansion strategy remains strong, with 28 new warehouse openings in 2024, including its first in New Zealand and Sweden. Expanding into markets like Asia and Europe offers significant opportunities for capturing more market share and driving long-term revenue growth. Costco Wholesale Corporation (NASDAQ:COST) is also making strides in e-commerce, with a 9.1% increase in online sales in Q4 2024, driven by rising demand for various product categories.
Costco Wholesale Corporation (NASDAQ:COST)’s emphasis on delivering value to its members and maintaining high customer loyalty is evident in its strong renewal rates and unique private-label products like Kirkland Signature. Plans to increase membership fees in 2024 could further enhance revenue, given the historically low churn rates. Costco Wholesale Corporation (NASDAQ:COST)’s successful holiday season, robust traffic, and exploration of new product categories and delivery options underscore its growth potential and market leadership.
Overall COST ranks 3rd on our list of Jim Cramer’s go-to stocks for success. While we acknowledge the potential of COST as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
