This Is Why Costco Is One of the Best Stocks to Buy and Hold
Costco Wholesale (NASDAQ: COST) has trounced the market over almost any period you can check. It has a differentiated operating model that breeds loyalty and high sales and is resilient during challenging times.
Some investors think that Costco stock is too expensive to buy right now, and valuation should certainly be a factor in your investing decisions. But before you get to that, evaluate Costco's business, and you'll see why this is a no-brainer buy-and-hold stock.
It's all about the members
Costco, as opposed to traditional retailers like Walmart or Target, charges shoppers an annual fee for the privilege of shopping in its huge warehouses. Customers pay up because they benefit from Costco's low markups and their savings more than make up for the price of the membership.
For Costco, the thin margins cover the costs of selling the products, and the fee membership goes straight to the bottom line. Shoppers make the most of their memberships, leading to higher volume and sales, and they renew their membership annually at an incredibly high rate -- some 90% globally and even higher in the U.S.. and Canada. It's a sales and profit-generating machine that works beautifully.
But the secret to long-term growth is Costco's expansion opportunities. It only operates 874 stores worldwide, including 602 in the U.S., a much lower count than the traditional or discount supermarket chain. It's aiming to open about 30 a year. It only entered China last year and already has six stores, and that's a huge growth market. As it expands, it has a simple route to increasing membership count, volume, sales, and profits. As they renew, profits get even higher. Rinse and repeat.
It's a distinct possibility that Costco's stock won't be able to handle its high valuation and may require some correction in the short term. But its solid business model, with high expansion opportunities leading to ever-increasing members, is a long-term tailwind that sets it up for future success. Costco is a stock you can buy today and hold forever.
Should you invest $1,000 in Costco Wholesale right now?
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
This Is Why Costco Is One of the Best Stocks to Buy and Hold was originally published by The Motley Fool
