We recently compiled a list of the 12 Best Forever 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 forever stocks to buy now.
Investment opportunities are increasingly cropping up as volatility in the equity markets edge higher in response to changes in the investment environment. Investors have had to tweak their portfolios as global central banks tweak their monetary policies in response to slowing inflationary pressure.
Uncertainty over the upcoming US election is another headwind that is fuelling volatility in the markets. Geopolitical tensions, especially in the Middle East, have also weighed significantly, forcing some investors to resort to defensive investment plays.
Nevertheless, the array of disappointing economic data led by weakness in the labor market has raised serious doubts about whether the US economy is overheating amid the high interest rates. With the economy creating partly 142,000 jobs and the unemployment rate at 4.25% in August, serious doubts were cast about the resilience of the US economy.
Investors need help understanding the state of the US economy, which had decelerated from the rapid expansion it experienced right after the pandemic when companies rushed to reopen and recruit new employees.
Reducing inflation has provided some relief for families struggling with rising costs. However, the job market has also slowed down, with fewer people being hired, wages increasing at a slower pace, and the duration of unemployment increasing as it becomes harder to secure employment.
A survey carried out by CNBC indicates that the probability of the US economy experiencing a soft landing stands at 53% as the US Federal Reserve starts its interest rate cut cycle. According to Michael Englund of Action Economics, the US economy is growing much faster than expected, even as it stares at economic risks on the horizon.
However, there is also a probability that the economy will plunge into recession at 36%, owing to the negative effects of the high interest rates. According to Diane Swonk, chief economist at KPMG US, Federal Reserve chair Jerome Power's legacy highly depends on him engineering a soft landing after keeping interest rates high for too long.
Analysts and economists share mixed opinions on whether the economy needs 25 or 50 basis points to start with to cure the effects of the high interest rate environment. The argument for beginning with a smaller cut is based on the assumption that the economy is fundamentally sound, as current and former FED officials argue.
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They argue that starting with a 50-basis-point reduction could signal a deeper concern over the economy. It could prompt investors to expect quicker rate reductions, which could spark market booms that complicate efforts to combat inflation.
On the other hand, a bigger reduction might cause investors to believe wrongly that the Fed intends to lower rates by the same amount at its meetings in November and December. This could create an expectation that the Fed would move swiftly towards a neutral interest rate target, which is meant to neither stimulate nor decelerate economic growth, according to James Bullard, who served as the president of the St. Louis Fed from 2008 to 2023.
Amid the monetary policy uncertainty and economic growth slowdown concerns, the US equity market has remained resilient and supported by solid financial results. The S&P 500 rallying by double percentage points affirms growing investor sentiment.
The artificial intelligence frenzy has been one of the main catalysts driving sentiments in the equity markets. Some stocks with exposure to AI have rallied by more than 50%. On the other hand, the FED cutting interest rates is expected to provide the much-needed fuel to sustain the upward momentum in the equity markets.
The best forever stocks to buy now are companies depicting solid revenue and earnings growth with low debt levels poised to generate long-term shareholder value. Additionally, they boast a competitive edge in their respective industries by investing billions of dollars in research and development. In addition, the companies are increasingly spearheading industrial trends and technological advancements such as artificial intelligence.
Our Methodology
The best forever stocks offer stability and growth, making them ideal for long-term investors. We analyzed the iShares MSCI USA Quality Factor ETF, focusing on high-quality US stocks with strong competitive advantages. We ranked the top 10 based on market cap and hedge fund holdings.
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).
Market Cap as of September 18, 2024: $397.79 Billion
Costco Wholesale is a consumer defensive investment play that operates a membership warehouse in the US. It sells high volumes of foods and general merchandise at discounted prices through a membership warehouse. Its product line includes sundries, dry groceries, candies, coolers, freezers, deli, liquor, tobacco, appliances, electronics, health and beauty aids, and hardware.
Costco's competitive edge stems from regularly adjusting to new trends, aiding its ability to draw in customers and investors. It has successfully capitalized on the increasing trend towards purchasing goods online. The store anticipates its extensive range of reasonably priced items will continue to draw in shoppers, whether they buy online or come to its brick-and-mortar locations.
Costco delivered a 7.1% rise in its monthly net sales, hitting $19.83 billion in August, up from $18.51 billion in the previous year's August. This impressive growth continues a wider pattern, as the firm has consistently upheld strong fundamentals. Revenues in its fiscal fourth quarter increased 1% year over year to $78.2 billion, while full-year sales increased 5% to $249 billion.
E-commerce remained a powerful force behind Costco's success, experiencing a 16.1% rise in sales comparable to the previous year. This shows Costco's ability to withstand competition in the retail world and highlights the company's ongoing attractiveness to shoppers around the globe.
The company remains in a solid financial position with a free cash flow of $7.4 billion while offering a 0.46% dividend yield. By the end of the second quarter, 71 hedge funds had invested in Costco Wholesale Corporation (NASDAQ:COST), with total holdings amounting to $5.96 billion. Fisher Asset Management was the largest shareholder, holding a position valued at $2.51 billion as of June 30.
ClearBridge Investments' ClearBridge Sustainability Leaders Strategy mentioned the following about 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 10th on our list of the best undervalued cyclical stocks to buy. 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, check out our report about the cheapest AI stock.