COST - Costco - Company Profile

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from

Costco has been battered severely by the Amazon/Whole Foods news. Shares were trading at $181 when the news broke and they crashed back to $150. We tried to buy them after the initial dip in June but we were early and the dip was not over.

After testing support at $150 twice over the last two months, I believe it is going to hold. The completion of the Whole Foods acquisition in late August knocked shares back to that level again but it was only a brief dip.

I have written multiple times that Costco and Whole Foods have nothing in common. Costco sells far more than groceries and they are far cheaper than Whole Foods. They are going to report earnings on September 28th and I expect them to be good. Guidance should also be good. Their stores have been packed out over the last couple weeks with people stocking up ahead of the hurricanes. There were lines around the block just to get in. With all the food destroyed in the Houston flooding, there will be lines with people replacing the stuff that was destroyed and that includes coffee makers, flat screen TVs and whatever other household goods that were trashed.

I firmly believe that Costco will return to its former highs because nothing has changed. Their membership model continues to add subscribers and Costco shoppers love Costco. The store loyalty is far greater than any other retail outlet.

LEAPS are too expensive so I am going with a shorter-term position. I am recommending the January calls that will get us past two earnings reports.

Buy Jan $160 call, currently $5.95, initial stop loss $148.