Daily Stock Pick: December 21st, 2021

The market seemed ready to bounce back this morning to recoup some of the losses from the sell-off in the previous session, which erased December gains for the S&P 500.  As of yesterday’s close, the Nasdaq was down 3.6% so far for the month and is on pace to snap a two-month winning streak, while the Dow was 1.3% lower.  

“As we head into the shortened holiday week amid surging omcron cases, continued supply chain pressures, and the failure of the Build Back Better plan, increased volatility and thinner trading volumes could cause the market to overreact, which could be a buying opportunity in the run-up to Christmas,” said Mark Hackett, Nationwide’s chief of investment research. 

The critical question is – will the dip buyers pounce here to turn things around before year’s end?  Only time will tell.  Today’s we’re highlighting a consumer staples darling that seems likely to weather any storm.  With significant probable catalysts on the horizon, this stock could do well, despite the headwinds for the overall market.  

Costco Wholesale (COST) has long defied the general downtrend for retailers for a host of reasons.  For starters, its bare-bones wholesaling operation doesn’t require the same attention to detail in its storefront.  In fact, warehouses in the suburbs are the ideal over chic urban real estate, and its dominant discounting model has won it tremendous loyalty among frugal shoppers.  

It also has tremendously reliable cash flow when compared with other retailers.  Consider that with some 67 million paid memberships at roughly $60 per pop in annual dues.  COST also enjoys a robust $4 billion in pure profit rolling in annually simply from renewals.  With Costco’s loyalty rates as strong as they are (around 90%), it seems like the income is reliable and likely to grow in the coming year.  There have been whispers of plans to increase the cost of membership. Historically the company hikes the price every five years, and it will be five years in July.  

It should be no surprise that Costco has not just weathered the pandemic but thrived amid it. As a result, the stock has surged 44% this year compared with 23% for the S&P 500 in the same period.  Looking to fiscal 2022, the company expects revenues to grow by a little under 10% and earnings to expand by low double digits.

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