Costco - COST - added

I added Costco Wholesale Corp (COST) to the Barchart Van Meerten New High portfolio.  They operate membership warehouses based on the concept that offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. This rapid inventory turnover enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.

Lower prices of merchandise have effected their revenue.  Transactions have been up 5% year over year but the discounting of prices has hurt revenue growth.  The best news is that their membership renewal rate of 87.5% is one of the highest in the industry.

Short sellers are running for the door.  On 5/14 short interest was 6.7 million share and on 9/15 short interest had dropped to only 3.5 million shares; that's a drop of almost half and should be a good sign in any ones book.  Much of the reason for the short interests having to cover can be attributed to the share price increase.

Share price was up 15.04% in the last month alone with the stock hitting 19 new highs in the last 20 sessions including 4 in the last 5.  Barchart's technical indicators give the company a 96% over all buy signal with the current price around 64.65 well above its 50 day moving average of 58.04.  The 14 day Relative Strength Index is 79.91% and rising.

Wall Street loves this stock with 16 of the 21 brokerages following the company recommending their clients buy this stock.  The buy reports are based on their estimates that the sales will increase by 9.10% this year and 6.60% next year.  The double digit earnings projections are increases of 13.20% this year, 11.30% next year and a 5 year annual EPS growth rate of 12.79%.  That's pretty impressive.

The general investor is optimistic also with the CAPS members on Motley Fool voting 3,823 to 148 that the stock will beat the market with the All Star members in agreement by a vote of 1,233 to 34.

The stock has everthing I look for:

• Recent upward price momentum with a falling short interest
• Wall Street brokerages issuing buy reports based on increases in sales and double digit earnings growth for at least 5 years
• General investor sentiment wide and over whelmingly positive.

Jim Van Meerten is an advisor to Marketocracy Capital Management who uses his model portfolios not only to manage their mutual funds but also their clients Separately Managed Accounts. You can read his blogs about those model portfolios and investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.


Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog.