27: Costco Wholesale Corporation (NASDAQ:COST)
Percent of Warren Buffett’s Portfolio: 0.5%
Dividend Yield: 1.2% Forward P/E Ratio: 27.0x (as of 5/16/16)
Sector: Consumer Discretionary Industry: Discount Retail
Dividend Growth Streak: 12 years
Costco Wholesale Corporation (NASDAQ:COST) started in 1983 and is the largest wholesale-club retailer in the country. The company operates large membership warehouses that offer members reasonably low prices on an assortment of products covering categories such as groceries, electronics, apparel, and more.
Costco has been one of Warren Buffett’s stock picks since 2000. Berkshire Hathaway scooped up shares after the stock plunged by nearly 40% during the year.
Buffett was very familiar with the company as Berkshire’s vice chairman, Charlie Munger, served on Costco’s board in the late 1990s.
Warren Buffett was likely attracted to Costco because of its low-cost producer status, reputation for quality, and loyal customer base.
Costco’s advantages begin with its 80 million cardholders (a membership card is required to shop at Costco). The company’s large group of customers provides Costco with excellent purchasing power over its suppliers, helping keep prices below traditional wholesale or retail outlets.
Management also keeps the company focused on providing excellent value by eliminating as many frills and costs as possible. Costco stores are far from extravagant on the inside and even eliminate the use of bags at checkout to save money and price their products lower.
The assortment of products at Costco is also unique. Many of its products are exclusive, and customers really can’t find the same mix of quantity, quality, and value anywhere else. This has helped Costco continue its strong growth despite increased competition from e-commerce players such as Amazon.
As a result of its low prices, quality merchandise, and simple shopping experience, Costco’s membership renewal rate has been excellent at around 90%.
What’s held Buffett back from buying more of this wonderful business? Unlike its products, the stock rarely looks like a bargain.
In hindsight, Berkshire surely wishes it had loaded up on more shares of Costco Wholesale Corporation (NASDAQ:COST) back in 2000.
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28: Graham Holdings Co (NYSE:GHC)
Percent of Warren Buffett’s Portfolio: 0.04%
Dividend Yield: 1.0% Forward P/E Ratio: 23.2x (as of 5/16/16)
Sector: Consumer Discretionary Industry: Schools
Dividend Growth Streak: 0 years
Graham Holdings Co (NYSE:GHC) was formerly known as The Washington Post up until 2013 when the company’s flagship newspaper was sold to Amazon.
After the sale, Graham Holdings was left as a diversified education and media company. It’s perhaps best known for its Kaplan subsidiary, which provides an array of educational services such as certificate degrees and test preparation materials.
Warren Buffett purchased a stake in The Post back in 1973. At the time, he was attracted to the company’s newspaper businesses due to their strong brands and focus on in-demand content that was difficult to obtain elsewhere.
As we all know, the media landscape has completed changed since the 1970s. Content is now readily available, and national newspapers have struggled to monetize their articles as effectively as they once did.
In 2014, after the company’s sale of The Washing Post newspaper, Berkshire decided to exchange most of its shares in Graham Holdings for a subsidiary TV station owned by the company and some cash.
It seems safe to say that Warren Buffett is not interested in continuing to own Graham Holdings Co (NYSE:GHC) since the underlying business has changed so much.
