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Asset Watch

Should you stock up on Costco?

Tuesday, March 12, 2024

It was a wholesale liquidation for Costco on Mar. 8, as the retail giant suffered its worst daily decline in nearly two years. The company surpassed analysts ‘consensus earnings per share (EPS) estimate, but the revenue miss had the fast-money crowd running for the exits.
Yet, Deutsche Bank analyst Krisztina Katai told clients, “Once again, Costco put its ability to drive traffic on display, delivering solid February and 2Q results.”
Though Costco CFO Richard Galanti said that a membership fee hike is a matter of “when, not if,” Katai wrote, “We still see a membership fee increase towards the end of FY24.” She also increased her price target from $774 to $830.
While the stock sunk on Mar. 8, should you buy the weakness given Costco’s history of outperformance?

The S&P 500 has risen by more than 80% over the last five years, while Costco is up by more than 200%. As such, the optimists have been rewarded for capitalising on corrections.

And like historical sell-offs, the 50-day moving average could be meaningful. Since 2020, sharp rallies have either found support at or near the 50-day MA, while verified breakdowns led to much deeper pullbacks.

Therefore, if Costco can hold the 50-day MA (near $705), a long position is justified. If not, practice patience and wait for a better entry point.

So, will Costco make a quick recovery, or is this the start of the next bear market?


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