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Add Costco (COST) as You Reshuffle Your Portfolio for 2022

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The year 2022 might be a bit challenging for the stock market, thanks to rising inflation, supply chain bottlenecks and the new Omicron variant that may decelerate the speed of the economic recovery at least in the first half. So, you need to be smart when it comes to investment. The right choice of stock may fetch you higher returns even amid changing market dynamics. We present you with one such stock, Costco Wholesale Corporation (COST - Free Report) that looks well-poised, given its sound fundamentals and growth efforts.

The tag “all-weather stock” suits Costco as the company has weathered multiple market gyrations and still delivered returns to investors. This operator of membership warehouses has exhibited a decent run on the bourses in the past year. Thanks to its operational initiatives — focus on expanding customer reach, cost optimization and strategic investments — the stock has outpaced both the Zacks Retail - Discount Stores industry and the Retail-Wholesale sector. In the said period, shares of this Zacks Rank #2 (Buy) company have appreciated about 42.7% compared with the industry’s growth of 20.8%. Meanwhile, the sector declined 11.4%.

Key Growth Drivers

Costco has emerged as a viable option for bargain hunters looking for essentials and other discretionary purchases. The company stands to benefit from its ability to draw traffic through strategic pricing along with a robust membership model and increasing penetration of e-commerce business. Cumulatively, these factors have been aiding the company in registering impressive sales numbers.

This Issaquah, WA-based company’s net sales increased 16.2% to $22.24 billion for the retail month of December from $19.14 billion in the last year. This followed improvements of 15.7%, 19.2% and 15.8% in November, October and September, respectively. Impressively, comparable sales for the month of December jumped 14.5%. We note that the metric has risen 14.1%, 17.5% and 14.3% in the months of November, October and September, respectively.

 

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Undoubtedly, Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or at stores. The company has been gradually expanding its e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia. Comparable e-commerce sales advanced 17.8% in December. This followed increases of 12.2%, 16.5% and 10.6% in November, October and September, respectively. Costco Logistics has bolstered e-commerce capabilities and facilitated the selling of "big and bulky" items.

Bottom Line

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. It is focused on ramping up investments in the wake of rising competition. We believe that the company’s business model as well as a commitment toward opening membership warehouses, and providing convenient and affordable ways to shop will continue to drive traffic, and in turn revenues.

3 More Stocks Looking Red Hot

Here are three more favorably ranked stocks — Kohl's Corporation (KSS - Free Report) , BJ's Wholesale Club (BJ - Free Report) and Albertsons Companies (ACI - Free Report) .

Kohl's Corporation, an omnichannel retailer, flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 114.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Kohl's Corporation’s current financial year sales and EPS suggests growth of 24.1% and 704.1%, respectively, from the year-ago period. KSS has an expected EPS growth rate of 8% for three-five years.

BJ's Wholesale, which operates warehouse clubs, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 17.7%, on average.

The Zacks Consensus Estimate for BJ's Wholesale’s current financial year sales and EPS suggests growth of 9% and 2.9%, respectively, from the year-ago period. BJ has an expected EPS growth rate of 10% for three-five years.

Albertsons Companies, a leading food and drug retailer in the United States, carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 31.8%, on average.

The Zacks Consensus Estimate for Albertsons Companies’ current financial year sales suggests growth of 1.5% from the year-ago period. ACI has an expected EPS growth rate of 8% for three-five years.