I think I’ve identified the best bargain-priced retail stock for today, Boxing Day.
But first, what the heck is Boxing Day?
Here in the U.S., we don’t celebrate Boxing Day; many people don’t even know the name. And those that do generally recognize that it derives from the historic British custom of giving gifts to the servants—who have served you on Christmas Day—and other minions on the day after Christmas.
But my readers in the U.K, Canada, Australia and New Zealand know differently. They know that Boxing Day is one of the biggest shopping days of the year, with big sales at all the major retailers.
In Ireland, the day has long been known as St. Stephens Day. But they now enjoy post-Christmas sales on the day, too.
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And here in the U.S., where we consider ourselves the experts of shopping, we simply call it the day after Christmas. (Can’t someone come up with a better name?)
In any case, shopping is now the name of the game in all these countries (and more), as commercial interests have increasingly taken mindshare from religion and family matters. And that means that retail stores are often great investments!
The New Best Retail Stock
The #1 retailer used to be Walmart (WMT); the stock was a great investment in the 80s and 90s. But then Amazon.com (AMZN) came along and began eating Walmart’s lunch. As I write, WMT is only 2% higher than its highest price in 1999.
AMZN, on the other hand, is up 579% since its highest price in 1999.
AMZN is king of the hill.
But AMZN now has a P/E ratio of 176! That’s what happens when everyone loves you!
AMZN is still a good investment for momentum-focused investors who aren’t afraid to pay up for growth—and who are prepared to cut losses short.
But I tend to worry when everyone loves a stock. To me, it means that the stock has more potential sellers than buyers—and thus someday will have more potential downside than upside.
So what I want to highlight today is a retail stock that isn’t so well loved. It’s a retail stock that you’ve probably heard of, but that doesn’t come to mind when you think of great retailers.
Nevertheless, the company does have good growth prospects, and its stock has great upside potential, with far more potential buyers than sellers. In my mind, that makes it the best retail stock to buy right now.
Best Bargain-Priced Retail Stock
The stock is Costco Wholesale Corporation (COST), well known as one of the founders of the warehouse shopping movement.
Today, Costco is not only the largest warehouse club operator in the world, it’s also the second largest global retailer, based on worldwide sales of $116 billion. But with a market cap of just $72 billion, it lags far behind higher-profile retailers like Amazon (market cap of $364 billion) and Walmart (market cap of $220 billion) in investors’ perception of value—and that spells opportunity.
Plus, Costco has growth potential, not on the scale of Amazon, but substantial potential nevertheless.
Today, the company operates 723 warehouse stores, with 506 of those in the U.S., 94 in Canada, and the remaining 123 spread among Mexico, the U.K., Japan, Korea, Taiwan, Australia and New Zealand.
In 2017, the company expects to open 31 new warehouse stores, including 17 in the U.S. and seven in Canada and the first stores in France and Iceland.
In the fiscal first quarter of 2017, which ended October 29, Costco reported revenues of $27.5 billion, up 3% from the year before and earnings of $1.24 per share, up 14% from the year before.
Both numbers were slightly below analysts’ estimates. But the stock gapped higher in response!
And as I’ve told you many times, the action of the stock is paramount.
So, while the common wisdom is that Costco is lagging on the e-commerce front (true), the fact is that e-commerce is not the only game in town—as we saw recently when Amazon opened up its own brick and mortar, self-service stores.
Costco has certainly explored the idea of competing with Amazon in the online shopping arena, but concluded that its strength is serving the penny-pinching American family that wants to fill the SUV with groceries at bargain prices—and fill up the SUV at the gas pump, too.
And then there are the dividends (which Amazon doesn’t pay). Costco began paying dividends in 2004, and today, the stock yields 1.1%. Plus, the dividend is growing at a healthy rate of 13% per year.
So, you could buy COST here, hoping that the current uptrend will be the one that breaks out above resistance at 170.
Or, you could look for the next Costco.
You see, COST was originally recommended more than two years ago in Cabot Dividend Investor, when the stock was even more out of favor than now. But investors who followed our advice are now sitting on profits of 48%—and enjoying a yield on cost of 1.6%. Also, officially, Cabot Dividend Investor now has COST rated HOLD.
So what you really want is the next Costco—the next best retail stock.
For details on how you can get it in Cabot Dividend Investor, along with comprehensive advice on building your own dividend stock portfolio, click here, because you deserve a portfolio of healthy dividend growers in 2017.
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