COST

Costco (COST) has outperformed the broader market with a +10.8% return over the past month. The company shows strong earnings growth expectations of +12.2% for the current quarter and +11% for the fiscal year.

However, the stock is rated Zacks Rank #3 (Hold) and receives a D valuation grade, indicating it is trading at a premium to peers. Recent earnings beat consensus estimates, but near-term performance is expected to align with the broader market.

The article recommends Amazon and Costco Wholesale as attractive retail stocks heading into the holiday shopping season. Amazon is favored as the better buy, trading 11% below its August record with strong revenue growth and AWS expansion. Costco is growing faster but trades at a premium valuation of 47x earnings, suggesting a dollar-cost averaging approach rather than a full position at current prices.

Costco's stock has declined over 18% from its May 2026 peak. Historically, the stock recovered to new highs within 12 months in 5 of 7 previous 10% declines.

However, recent exceptions (2022 and 2025) suggest caution, as recovery took much longer when valuations were steep. Currently trading at a P/E of 47.3 (above the 10-year average of 40), the stock may drift sideways as earnings catch up, though long-term investors may find it a buying opportunity.