We recently compiled a list of the 10 Best Retail Stocks To Buy Now. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against the other retail stocks.
Tech is Disrupting Retail
The rise of tech and artificial intelligence (AI) in the past few years has had an impact not only on the tech sector but on the entire market. The retail sector is no stranger to this impact, with analysts now considering tech-enabled innovation as one of the core drivers in the growth of the retail sector. As a result, those retailers that are taking the tech expansion seriously and are making investments to incorporate new technology in their operations are finally beginning to catch the market’s attention.
On June 24, Simeon Gutman, analyst at Morgan Stanley, joined CNBC’s “The Exchange” to discuss the impact of tech and AI on retailers and how these companies are making use of tech to drive up profit margins. Here are some of his comments on the retail companies to keep an eye on in this respect:
“Walmart’s the one that comes to mind the first… with Walmart, you’re hitting the nail on the head with several of these aspects of tech diffusion, and on top of it, they’re gaining market share in terms of tech diffusion. AI is easily one of them, big scale, lot of data, lot of opportunity to go through their data and enhance both the frontend of their business, drive more sales to customers, make things easier, and improve the backend.”
According to Gutman, big-box retailers are the sector’s winners when it comes to incorporating innovative tech in their internal operations. Because of such innovation in retail, and its consequent impact resulting in increased profit margins for retailers, there may be room to argue that retail is fast making a comeback in the market.
Retail Sector Outlook 2024
According to the WTW Global Retail Survey for 2024, 52% of retailers this year generally expect higher profitability within two years. Additionally, more retailers today (48%) are looking to incorporate artificial intelligence in their operations to offer personalized shopping experiences to their customers. However, the rise of tech and AI in the sector has also resulted in some retailers (43%) voicing concerns about higher cybersecurity risks arising through a greater reliance on new technologies.
Despite the risks involved, most retailers today are heading towards AI incorporation to meet customers’ demands. According to the survey, AI is primarily favored by online-only and electronic retailers because of its potential for catalyzing growth. By helping retailers automate their processes and supply chain operations, AI and new technologies can enable retailers to deliver personalized experiences and recommendations to their customers. This is an exceptionally important feature in today’s market, with consumers becoming more reliant on new technologies and their benefits in everyday life.
Our Methodology
We sifted through ETFs and online rankings to compile a list of 25 retail stocks. We also used the Finviz stock screener to double check we didn’t miss any popular stocks. For this list, we have considered apparel retailers, discount stores, department stores, and home improvement retailers. We selected and ranked 10 stocks, from our initial pool of 25, that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds holding stakes in them.
Why are we interested in 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 Holders: 65
Costco Wholesale Corporation (NASDAQ:COST) is a consumer staples merchandise retail company based in Issaquah, Washington. It operates membership warehouses. The company’s markets include the US, Puerto Rico, Canada, Mexico, Japan, the UK, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden.
A Buy rating was maintained on Costco Wholesale Corporation (NASDAQ:COST) on June 25 by Tigress Financial analysts. The consensus average price target on the stock is $860.6 as of June 28.
Costco Wholesale Corporation’s (NASDAQ:COST) main business advantage is found in the fact that the company operates on a membership-based business model, through which it not only retains customer loyalty but also rakes in significant revenues with its membership fees. As of this June, the annual membership fees is $60, but there’s talk of this being increased. A significant portion of Costco Wholesale Corporation’s (NASDAQ:COST) income comes through its membership fees, with the company raking in $1.1 billion through these fees alone in the fiscal third quarter of 2024.
Costco Wholesale Corporation (NASDAQ:COST) had 65 hedge funds long its stock in the first quarter, with a total stake value of $4.6 billion.
Overall COST ranks 3rd on our list of the best retail stocks to buy. You can visit 10 Best Retail Stocks To Buy Now to see the other retail stocks that are on hedge funds’ radar. While we acknowledge the potential for 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.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
