The market had a challenging week. The two most popular market indexes declined 2% to 5%. It’s still been a winning year for many investors, but if the market continues to slide this summer, you might want to warm up to some stocks that can do well in a dicey market environment.
Costco (NASDAQ: COST) scratches that itch. The country’s leading warehouse club operator isn’t just recession-resistant. At its best, the chain can also be recession-resilient. Let’s take a closer look at why Costco could be worth every dollar of the next $1,000 you put to work in the market.
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If you’re a Costco member, you’re not alone. There are 82.9 million paid memberships, serving 149 million cardholders. Even if you’re not a Costco shopper, you are likely familiar with the experience. Members get great deals on bulk-sized offerings, and it reflects in their allegiance to the brand.
Despite an increase in membership prices two summers ago, Costco members remain loyal. Its U.S. and Canada renewal rate clocks in at an impressive 92.2%. This is important, speaking to the stickiness of the retail platform. Folks know they’re not being gouged at Costco. Its trailing net margin is at a record 3%, and most of that is just the membership fee.
Members stick around in good times because they can save money on everything they spend. In lean times, it’s essential to get as much bang for every buck that they hand over. The all-weather business model works.
It’s time to back up my claim of Costco’s resiliency. Costco has delivered positive revenue growth in all but one of the last 33 years. The one outlier — the Great Recession of 2009 — its top line slipped a modest 1.5%.
Unlike the deep value in its warehouses, Costco stock isn’t cheap. It’s trading for 48 times trailing earnings. You don’t expect safe stocks to trade at multiples this high, but you’re not likely to get Costco at a bargain-basement profit multiple.
Investors flock to the reliable performance of steady comps growth stacked on top of slow but steady expansion. There is also more than two decades of rising quarterly dividends (22 years, to be exact), along with the occasional one-time distributions.
Success adds up over time. The stock is a 148-bagger since going public in 1993. The dividends are just gravy for the real star of this show. It doesn’t mean that the shares won’t slide from time to time. However, Costco’s one-year beta of 0.02 shows how weakly it’s correlated to the more volatile swings of the general market. You’ve worked hard for the next $1,000 that you will be investing. Costco has historically done a great job of working just as hard to keep it growing for you.
