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☕ Costco: buy, sell or hold?

Sep 27, 2024

Good morning! 👋

The markets have gone green but split early as traders digest the Fed’s latest reading.

I’ll have more on that in a minute.

First, though, I want to make sure you’ve got a bead on things.

Mentally.

The next 60 days or so will be a crapshoot in terms of stock prices.

The path of least resistance remains higher – and there’s no doubt about that with the Fed on the sidelines – but volatility will be our travelling companion as we head into elections.

That’s almost certainly an opportunity, just as it has been in the past.

Contrary to what a lot of people believe and what you will undoubtedly hear in the media, what happens next isn’t a matter of who wins or loses nor is it a function of handicapping the outcome.

Big institutional investors and traders are already focused on 2025.

Like us, they’re making sure they’ve got the best stocks, the best profit potential, and the best upside they can buy.

If you’ve been reading along for any length of time whatsoever chances are good that you know where I’m going with this.

Repeat after me...

Buy the best, ignore the rest.

Smiling is, of course, optional but highly encouraged. 😊

Here’s my playbook.

1 – Lower CPI gives the Fed room to play with higher prices

The Fed’s so-called “favorite gauge” - the PCE - came in at 2.2% this morning. (Read)

Lower than expected which, of course, clears the deck for higher prices.

Just remember that the markets are a finely tuned machine for transferring money from the impatient to the patient. Everything else comes down to risk management and tactics.

2 – Every investor should own gold, just do so for the right reasons

I see loads of people buying gold lately.

Many tell me that they want something to trade if things take a turn for the worse when I ask ‘em why.

That makes no sense.

Hurricane Katrina wiped out an area the size of Great Britain and people were not trading gold for needed supplies. But they were trading bullets, diapers, and medicine.

My point is that you want to own gold for the right reasons.

Just like the stocks we talk about frequently.

And what are the right reasons?

I can think of a few but the biggest is that having a little bit of gold can help dampen overall portfolio volatility over time – meaning investors who own it tend to have a smoother ride than those who don’t.

MyPOV: It really doesn't matter what “form factor” you like. Jewelry, currency, coins, bullion, ETFs... just do me a favor and work with a reputable dealer rather than falling prey to smarmy late-night commercials and hustlers.

3 – Costco: Analysts get it wrong again

Costco beat earnings but “missed expectations” and a quick headline scan tells me that the negative nellies are out in force this morning. (Read)

Not true.

Analysts got it wrong again. 🤦

Let’s review (Read)

Revenue +1% YoY, increasing to $79.7B

Earnings +9% to $2.35B

Online sales +18.9% YoY

Houshold memberships +7.3% (now 76.2 million paid)

Executive memberships + 9.6% now (35.14 paid)

More than 50% of new member signups in fiscal year 2024 were under 40 years of age (which means a younger generation capable of powering sales and earnings for decades is coming on board)

This is not a company that “missed.”

Earnings cycles are a 90-day event but running companies like Costco require long-cycle thinking.

Are you really going to give a rip about what analysts who don’t work for the company, who have never likely spent a day in retail, who are not privy to company financials and operational data think? Or are you going to focus on executives who actually work there and who know exactly what they’re doing.

I’m with the latter every time.

That's why I emphasize CEOs as part of the investing process.

Costco has returned 209% over the past 5 years while the S&P 500 has turned in 94%.

You know what to do.

$1,000 a share, for reasons I laid out to the incomparable Stuart Varney earlier this week. (Watch)

Btw, if this strikes a chord and you’d like to know what other great retail stocks I’ve shared with the OBA Family, I’m here. My “other” fav, has returned nearly 50% over the past 12 months and could do a whole lot better over the next 24.

4 – First novel drug in 70 years

The FDA has approved Bristol Myers Squibb’s first new drug for treating Schizophrenia in 70+ years. (Read)

Excellent.

Schizophrenia is a devastating disease and one that, frankly, quite a few more people have than you’d think. Approximately 24 million people are living with this disease according to the World Health Organization.

I’m not so happy, on the other hand, to see that Cobenfy will apparently cost $1,850 for a month’s supply or $22,500 annually before insurance and other rebates, according to Bristol Myers Squibb execs. But that’s just me.

The thing that strikes me – and what I want to encourage you to think about – is that there will be other novel new treatments for many of the health challenges we face in the years ahead from virtually all of the top drug makers.

Particularly as AI accelerates.

5 – Intel rejects ARM’s olive branch

Bloomberg reports that Intel has told ARM, “No thanks.” (Read)

I’m sure CEO Pat Gelsinger has his reasons, but I’ll be danged if I can figure out what they are.

Intel missed mobile, missed the cloud, missed AI, is in slash and burn mode and now – for reasons that defy explanation – seems to think there’s still a path forward.

Talk about a battle between stubbornness and salvation!

I have made the observation more than once that Intel is dead money over the years with good reason, usually to harsh criticism and finger wagging.

No matter.

Intel stock has dropped ~60% from its most recent peak of $68.26 on April 9, 2021. Nvidia, on the other hand, has returned ~750% while AMD has returned ~103% over the same time frame.

If you’d spent $1,000 buying each of ‘em, today you’d have ~$400 to show for Intel but ~$8,500 and ~$2,030 for Nvidia and AMD.

Kinda an eye opener isn't it.

So why’s Intel up nearly 3% today as I type?

I can think of a few reasons.

Bottom fishing
Wall Street is setting up short by feeding on the (unsuspecting) bottom fishers
There’s a flurry of liquidity from market makers who are building inventory for the next big move

You’ll notice that not one of those things has anything to do whatsoever with the company itself.

There’s a light at the end of the tunnel, but I have a sneaking suspicion Intel’s management may not realize that it’s a train.

Continue to avoid, short or simply putskies!

Keith’s Investing Tip: Anybody can buy stocks but knowing how the game is played can go a long way toward making sure you buy the “right” ones and that you have the best possible and most direct path to profits.