We recently published a list of 10 stocks Jim Cramer talks aboutIn this article, we will look at how Costco Wholesale Corporation (NASDAQ:COST) compares to other stocks that Jim Cramer talks about.
On a recent episode of Mad Money, Jim Cramer suggested that we may be misreading retail. He argues that the debate over whether consumers are sick, healthy, frugal or stressed may be misguided. According to Cramer, consumer behavior doesn’t change dramatically overnight; people don’t suddenly go from sick to healthy in a quarter. Looking ahead to Friday’s Fed discussion in Jackson Hole, with market averages up 56 points and the S&P 500 up 42%, it’s clear that we need to rethink our views on the state of consumers.
“Maybe we’re looking at retail all wrong. Maybe this whole debate about whether the consumer is sick, healthy, frugal or stressed is just a big pile of crap. The consumer doesn’t change behavior overnight; they don’t get sick and then recover within a quarter. When we think about what the Fed will be discussing in Jackson Hole on Friday while the averages are up 56 points and the S&P 500 is up 42%, we need to rethink the big debate about the state of the consumer.”
Jim Cramer points out that understanding consumer behavior is crucial to predicting when the Fed might cut rates. He explains that the Fed needs to cut rates before the economic situation deteriorates to the point where urgent intervention is required. However, the Fed cannot act when the economy is doing well.
“This debate is central to the market’s need for rate cuts. First, we need to understand that the Fed needs to start cutting rates before the economy deteriorates to the point where it has to rush to fix things. But it can’t act when the economy is doing well. Aggregate retail sales data is inconclusive, so we often try to extrapolate from individual retailer data. Collectively, these retailers seem to suggest that the consumer is fickle and potentially overwhelmed.”
Jim Cramer argues that the current debate about consumer behavior may be misguided. He believes consumers are not as fickle as some claim. Instead, they shop at stores run by successful retail CEOs like Ron Vachris, Doug McMillon, Ernie Herman and Brian Cornell.
“Tonight, I argue that the consumer is not fickle at all. People go shopping, and they shop where great retail CEOs are making a difference, like Ron Vachris at Costco, Doug McMillon at Walmart, Ernie Herman at TJX and Brian Cornell at Target. Those are the places where people shop. The consumer is not thrifty or stingy; he just shops where he prefers to shop, and these great retailers attract him.”
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A customer browses the aisles of a warehouse through the large range of branded and private label products.
Costco Wholesale Corporation (NASDAQ:COST)
Number of hedge fund investors: 71
Jim Cramer highlighted Costco Wholesale Corporation (NASDAQ:COST) as a unique retailer that ranks as the second-largest pure-play retailer in the country. He explained that Costco Wholesale Corporation (NASDAQ:COST) acts as a giant buying group for its members, offering exceptional prices that are sometimes lower than what the store itself pays.
“Costco is unique. It’s the second-largest pure-play retailer in the country, and it basically acts as a giant buying group for its members, who order pretty much anything. As a member, you get incredible prices, including some that are probably below what the store itself pays, like the bottles of wine I mentioned the other day and the gold bars everyone is so crazy about.
Costco is a unique retailer where you may not find everything, but what you do find is likely cheaper than anywhere else. This store has done the most to lower prices in this country, often through its premium house brand, Kirkland Signature. Costco is not afraid to push out any national brand product if it doesn’t lower prices, and under the Kirkland label they lower prices because the Kirkland brand is better than most name brand products.”
Costco Wholesale Corporation (NASDAQ:COST) represents a strong investment opportunity due to its impressive financial performance and strategic advantages. Costco Wholesale Corporation (NASDAQ:COST) reported earnings per share of $5.09 in the fourth quarter of 2024, which was in line with market expectations. Despite the challenges in the retail environment, Costco Wholesale Corporation (NASDAQ:COST) continued to report strong revenue growth, particularly in membership fees and net sales, which were the key revenue drivers. Costco Wholesale Corporation (NASDAQ:COST) also announced a quarterly dividend of $1.16 per share, reflecting its continued commitment to creating value for shareholders.
Costco Wholesale Corporation’s (NASDAQ:COST) membership model is a key asset, generating $4.3 billion in pure profit from membership fees in fiscal 2023, with a high renewal rate of around 90% reflecting strong customer loyalty. Costco Wholesale Corporation’s (NASDAQ:COST) expansion plans, including opening approximately 30 new warehouses per year and focusing on international markets such as China, provide significant growth opportunities.
In addition, Costco Wholesale Corporation (NASDAQ:COST) has demonstrated resilience during economic downturns, such as the COVID-19 pandemic, and its e-commerce business grew 9.7% in fiscal 2023. Together, these factors underscore Costco’s potential for continued revenue growth and a leading role in the retail market.
ClearBridge Sustainability Leaders Strategy stated the following about Costco Wholesale Corporation (NASDAQ:COST) in its second quarter 2024 investor letter:
“Consumer goods investments also performed excellently in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to perform well and deliver better-than-expected earnings, helped by strong traffic that resulted in better cost leverage. Customers also appeared to place more emphasis on discretionary purchases.”
Total costs 3rd place on our list of stocks Jim Cramer talks about. While we recognize COST’s potential as an investment, our conviction lies in the belief that under-the-radar AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that shows more promise than COST but trades at less than 5x earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
