We recently published a list of 10 Stocks Jim Cramer is Talking About. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against other stocks Jim Cramer is talking about.
On a recent episode of Mad Money, Jim Cramer suggests that perhaps we are misjudging the retail sector. He argues that the debate over whether consumers are sick, well, frugal, or stressed might be misguided. According to Cramer, consumer behavior doesn’t shift dramatically overnight; people don’t suddenly change from being sick to well within a single quarter. As we look ahead to the Fed’s discussion at Jackson Hole on Friday, with the market averages rising by 56 points and the S&P 500 increasing by 42%, it’s clear we need to reassess our views on the consumer’s state.
“Maybe we’re looking at retail all wrong. Perhaps this whole discussion about whether the consumer is sick, well, frugal, or stressed is just a big pile of manure. The consumer doesn’t change their behavior overnight; they don’t get sick and then recover within a single quarter. As we consider what the Fed will discuss on Friday at Jackson Hole, with the averages inching up 56 points and the S&P 500 advancing 42%, we need to rethink the great debate about the state of the consumer.”
Jim Cramer points out that understanding consumer behavior is crucial for predicting when the Fed might cut interest rates. He explains that the Fed needs to lower rates before the economy worsens to the point of needing urgent intervention. However, the Fed can’t act if the economy is performing well.
“This debate is central to what the market needs to see for rate cuts. We first need to understand that the Fed has to start cutting interest rates before the economy deteriorates to a point where they need to scramble to fix things. However, they can’t act if the economy is doing fine. The aggregate retail sales data is inconclusive, so we often try to extrapolate from individual retailers. Taken together, these retailers seem to suggest that the consumer is fickle and perhaps tapped out.”
Jim Cramer argues that the current debate about consumer behavior might be misguided. He believes that consumers are not as fickle as some suggest. Instead, they are shopping at stores led by successful retail CEOs like Ron Vachris, Doug McMillon, Ernie Herman, and Brian Cornell.
“Tonight, I’m arguing that the consumer is not fickle at all. People are shopping, and they’re shopping at places where great retail CEOs are making a difference, like Ron Vachris at Costco, Doug McMillon at Walmart, Ernie Herman at TJX, and Brian Cornell at Target. These are the places people are choosing to shop. The consumer isn’t frugal or tight-fisted; they’re simply shopping where they prefer, and these outstanding merchants are drawing them in.”
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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)
Number of Hedge Fund Investors: 71
Jim Cramer highlighted Costco Wholesale Corporation (NASDAQ:COST) as a unique retailer, ranking as the second-largest pure-play retailer in the country. He explained that Costco Wholesale Corporation (NASDAQ:COST) operates as a massive buying group for its members, offering exceptional prices, sometimes lower than what the store itself pays.
“Costco is like no other. It’s the second-biggest pure-play retailer in the country, and it functions basically as a gigantic buying group for its members who order pretty much everything. The membership gets you amazing prices, including some that are likely below what the store itself pays, like the bottles of wine I mentioned the other day and the gold bullion everyone is so crazy about.
Costco is a one-of-a-kind retailer where you might not find everything, but what you do find is likely cheaper than anywhere else. This store has done the most to roll back prices in this nation, often through its premium house brand, Kirkland Signature. Costco isn’t afraid to go after any nationally branded product if it won’t lower prices, and under the Kirkland label, they get prices down because the Kirkland brand is better than most of the branded stuff.”
Costco Wholesale Corporation (NASDAQ:COST) represents a strong investment opportunity due to its impressive financial performance and strategic advantages. Costco Wholesale Corporation (NASDAQ:COST) posted Q4 2024 earnings per share of $5.09, which aligned with market expectations. Despite challenges in the retail environment, Costco Wholesale Corporation (NASDAQ:COST) continued to demonstrate strong sales growth, particularly in its membership fees and net sales, which were key drivers of revenue. Costco Wholesale Corporation (NASDAQ:COST) also declared a quarterly dividend of $1.16 per share, reflecting its ongoing commitment to returning value to shareholders.
Costco Wholesale Corporation (NASDAQ:COST)’s membership model is a key asset, generating $4.3 billion in pure profit from membership fees in FY 2023, with a high renewal rate of around 90% reflecting strong customer loyalty. Costco Wholesale Corporation (NASDAQ:COST)’s expansion plans, including opening about 30 new warehouses annually and focusing on international markets like China, present significant growth opportunities.
Additionally, Costco Wholesale Corporation (NASDAQ:COST) has shown resilience during economic downturns, such as the COVID-19 pandemic, and its e-commerce business has grown by 9.7% in FY 2023. These factors together highlight Costco’s potential for continued revenue growth and leadership in the retail market.
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 3rd on our list of stocks Jim Cramer is talking about. 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 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.
