COST

Market movements show tech stocks closing lower while oil prices rose and treasury yields declined, with the 10-year yield falling below 5%. The article highlights Costco as a strong buy opportunity with positive growth forecasts and solid analyst revisions.

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.

Costco (COST) closed at $989.43, up 1.17%, outperforming the S&P 500's 1.09% decline. The stock gained 9.41% over the past month.

Expected Q3 EPS of $4.87 (up 12.21% YoY) and revenue of $74.14 billion (up 10.16% YoY) are anticipated. However, the stock carries a premium valuation with a Forward P/E of 43.09 versus industry average of 22.48, and a PEG ratio of 4.18 compared to industry average of 1.83. Costco holds a Zacks Rank of #3 (Hold).

Costco projects fiscal 2027 revenues to grow 8.4% to $328.53 billion with 11% earnings growth, supported by 84.1 million memberships and 20%+ digital sales growth. However, the stock trades at 42.3X forward earnings—well above industry and market averages—creating execution risk. Margin pressures from labor costs, tariffs, and commodity inflation further complicate the outlook, warranting a cautious stance despite strong operational fundamentals.

Costco Wholesale demonstrates superior financial strength with $21.3 billion in cash and short-term investments against only $6.2 billion in debt, generating $9.4 billion in free cash flow. The company plans $7.5 billion in capital spending for fiscal 2027 to expand warehouses and supply chains. While Costco outperforms peers Target and BJ's Wholesale Club in liquidity and debt management, its valuation at 41.55x forward P/E remains elevated despite moderating from recent highs.

While 10-year U.S. Treasury notes currently yield 5.2% compared to Costco's 0.6% dividend yield, the article argues Costco is the better long-term investment. A $10,000 investment in Costco 10 years ago would be worth nearly $75,000 with reinvested dividends, versus $11,800 from Treasury notes. Costco's growing business, rising dividend (up 13.2% annually over five years), and special dividends outweigh the Treasury's higher current yield for patient investors with a 10+ year horizon.

Costco has recently attracted investor attention with shares returning +5.1% over the past month, outperforming the S&P 500's +1.3% gain. The company shows strong earnings growth expectations of +12.7% for the current quarter and +11.8% for the fiscal year, with consistent beats on both EPS and revenue estimates. However, the stock carries a Zacks Rank #3 (Hold) rating and trades at a premium valuation (Grade D) relative to peers, suggesting it may perform in line with the broader market in the near term.

Costco Wholesale Corporation reported net sales of $30.02 billion for September 2026, up 13% year-over-year, with total comparable sales rising 11.4%. U.S. comparable sales climbed 12.5%, while digitally enabled sales surged 19%. The company's fiscal-year EPS estimate was raised 37 cents to $22.87, reflecting strong momentum across its membership-based business model and geographic regions.

Zacks explains how its Style Scores (Value, Growth, Momentum, and VGM) work in conjunction with the Zacks Rank to help investors identify stocks with the highest likelihood of outperformance. The article highlights Costco as a stock to watch, noting its #3 Hold rank but strong Growth Style Score of A and VGM Score of B, with forecasted earnings growth of 11.8%.

Five consumer stocks—Williams-Sonoma, Domino's Pizza, TJX Companies, Lowe's, and Costco Wholesale—have all more than doubled their dividends since 2019. Each company is backed by specific growth initiatives: Williams-Sonoma's AI shopping assistants, Domino's loyalty program expansion, TJX's off-price retail strength, Lowe's professional contractor market acquisitions, and Costco's strong membership renewal rates. However, some face headwinds like Domino's slower sales and Costco's declining comparable sales growth.

Zacks Premium offers investment research tools including the Zacks Rank and Style Scores to help investors identify stocks with strong performance potential. The service rates stocks based on value, growth, and momentum characteristics, with historical data showing #1 Rank stocks averaging +23.86% annual returns since 1988. Costco is highlighted as a stock to watch with a #3 Hold rank and strong momentum indicators.

An analysis predicts that a $5,000 investment in Costco stock could grow to approximately $6,350 by end of 2030 (6% annual gain), underperforming the S&P 500's historical 10% average annual return which would yield around $7,450. While Costco's earnings are expected to grow 11% annually, the stock's premium valuation (49x earnings) may compress, limiting upside potential despite strong business fundamentals.

Vanguard Consumer Staples ETF (VDC) is recommended as the better buy for most investors due to its ultra-low 0.09% expense ratio and superior 5-year performance (44% total return, 7.6% CAGR), despite focusing only on U.S. companies. iShares Global Consumer Staples ETF (KXI) offers international diversification with 60% U.S. and 40% international exposure and slightly higher dividend yield (2.3% vs 2.1%), but charges a higher 0.38% expense ratio and delivered lower returns (31% total return, 5.5% CAGR).

Costco's stock price has reached ~$994 per share since its last 2-for-1 split in January 2000, prompting investor questions about another split. However, CEO Ron Vachris and CFO Gary Millerchip have repeatedly stated there are no immediate plans, citing that fractional share purchases now make splits less economically necessary. The company continues to review the possibility with its board, but the author believes a split is unlikely in the near term and suggests a special dividend would be more beneficial to shareholders.

Morgan Stanley names Amazon as its top pick with a $350 price target, citing a 30%+ upside potential. The firm identifies five catalysts including accelerating AWS growth (47% expected next year), expanding operating margins, AI infrastructure investments, e-commerce AI integration, and robotics efficiency gains. The analyst projects AWS revenue could nearly triple to $373.6 billion by 2028 with 44% operating margins.

With inflation rising to 3.7% in September, Walmart and Costco are positioned to benefit from their thin-margin business models that appeal to value-conscious consumers. Both companies reported strong recent quarters with solid sales growth, though their stocks already reflect much of this optimism at elevated valuations.

Costco continues to be recognized as one of the best retailers globally, offering excellent value to its customers. The company boasts one of the highest customer retention ratios of any membership program, demonstrating strong customer loyalty and a solid business model.

The article outlines six measurable traits that distinguish long-term winning stocks, illustrated through real companies. These traits include consistent dividend growth (Coca-Cola), high return on invested capital (Alphabet), strong free cash flow conversion (Monster Beverage), customer loyalty/moat (Costco), insider ownership (Copart), and reinvestment at high returns (Netflix). The author emphasizes that no company aces every test, and temporary stock declines shouldn't deter investors in fundamentally strong businesses.