We recently published a list of 15 Best Stocks to Buy According to Hosking Partners. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against the other best stocks to buy according to Hosking Partners.
Hosking Partners was established in 2013 by Jeremy Hosking as an independent partnership that offers a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking employing a capital cycle approach to investing. It has a diverse set of stocks in its portfolio that belong to a variety of industries consisting of AI, shipping, and financial services, among others. Jeremy Hosking earned an MA from the University of Cambridge, after which he served Marathon Asset Management 26 years as a founding partner and lead portfolio manager. There he contributed to developing the capital cycle approach to investment.
In its recent blog about shipping, Hosking Partners believes that understanding the cycles in different classes of shipping and global trends is essential for successful investment in the industry. Currently, Shipping (covering the container, dry bulk, product tanker and LNG sub-sectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010 caused by deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability from the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping by enabling cross-border trade.
Furthermore, shipping is a significant emitter of CO2, accounting for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty over future fuel technology deters investment in new ships, leading to a tighter supply. The industry’s efficiency, measured by emissions per tonne-km, remains high compared to other transport modes. The shipping industry is at a pivotal juncture, with significant transformations driven by AI, the energy transition, and ESG considerations.
Another industry that Hosking Partners talks about is copper mining. Copper is often seen as a barometer for economic health and is crucial for the energy transition, including electric vehicles, power grids, and wind turbines. Wall Street banks are optimistic about copper prices, forecasting significant gains. Citi analysts suggest that prices could surge to over $15,000 per ton in the next 2-3 years if a strong economic recovery occurs, while their base case projects a rise to $12,000 per ton with modest demand growth through 2025 and 2026. Bank of America has also increased its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand driven by the energy transition as key factors.
However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and if supply issues persist, demand may adjust, potentially leading to lower prices. Hamilton suggests that while high price targets might be temporarily achievable, adjustments in demand could follow. The market may see a modest surplus due to increased mined supply, which is projected to grow by 4-4.5%. This is largely driven by new greenfield and brownfield projects. Despite the near-term surplus, long-term scarcity is anticipated as regulatory and political challenges in South America could impede the development of new mines.
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A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Costco Wholesale Corporation (NASDAQ:COST)
Hosking Partners’ Stake Value: $77,227,541
Percentage of Hosking Partners’ 13F Portfolio: 2.85%
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) operates a global network of membership warehouses under the “Costco Wholesale” brand, offering high-quality, brand-name products at reduced prices. Costco showed steady adjusted U.S. core comparable sales growth of 5.7%, supported by increased customer traffic both in the U.S. and globally. The discretionary segment saw same-store sales growth in the mid- to high-single digits in June, slightly improving from the previous month. Additionally, e-commerce sales increased by 15.4%, up from 14.8% in April.
Costco Wholesale Corporation (NASDAQ:COST) is a strong investment opportunity, backed by its solid financial performance and strategic advantages. In Q4 2024, the company met market expectations with earnings per share of $5.09. Despite a challenging retail environment, Costco saw robust sales growth, especially in membership fees and net sales, which drove revenue. On June 7, Deutsche Bank reiterated its Buy rating on Costco with a price target of $925, citing the company’s resilience in a volatile consumer market.
Costco’s membership model is a significant asset, generating $4.3 billion in profit from fees in FY 2023, with a high renewal rate of about 90%, indicating strong customer loyalty. The company’s expansion plans, including the annual opening of around 30 new warehouses and a focus on international markets like China, offer substantial growth potential.
Moreover, Costco has proven resilient during economic downturns, such as the COVID-19 pandemic, and its e-commerce business grew by 9.7% in FY 2023. These factors underscore Costco’s potential for continued revenue growth and leadership in the retail sector.
ClearBridge Sustainability Leaders Strategy stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
Overall COST ranks 5th on our list of the best stocks to buy according to Hosking Partners. While we acknowledge the potential of COST as an investment, our conviction lies in the belief that 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 COST 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.
