Investing For Bulky Returns
Monthly Deep-Dive: Costco Wholesale $COST
Investors,
I’m excited to share this analysis of the retail behemoth, Costco Wholesale COST 0.00%↑! While this unassuming business has a fairly bland qualitative thesis & flies under the radar, the stock itself is anything but boring. Over a trailing 10-year period, Costco’s stock has generated a total return of 460% vs. the S&P 500’s +163%.
That’s the difference between 5.6x’ing your capital and “only” 2.6x’ing, highlighting how Costco’s management has been able to deliver on the company’s core competencies and create an immense amount of shareholder value. This isn’t a fluke.
Management has navigated this company successfully, positioning the firm in a position of success. With a consistently growing market cap, currently valued at $220Bn, it’s clear that the company is providing immense value to both customers and shareholders alike. Nonetheless, past performance is never a guarantee of future returns, so it is therefore vital to reassess the fundamentals to understand if the company is worthwhile to invest in right now.
Since launching this series in 2023, I’ve analyzed Chevron Corporation CVX 1.49%↑, Meta META 0.38%↑, and AMD AMD 0.00%↑, with the following takeaways:
Chevron $CVX: Great company in a negatively viewed industry, could be setting up for a contrarian, long-term investment thesis. CVX has extremely strong & consistent operating cash flows and management has exhibited an amazing ability to generate shareholder return over the long-run. The stock’s high dividend yield and generous share buyback program will benefit shareholders, all else being equal; however, I felt that the stock was too expensive and didn’t think it was worth DCA’ing into in late January. Since then (February 1, 2023), the stock has fallen as much as -14% and it has clawed its way back to a YTD return of -6%. Much of this recovery was sparked by the OPEC supply cut in March, which highlights the worrisome qualitative investment thesis tied to oil.
Facebook/Meta $META: Fits within my overall long-term thesis in technology, the digital age, and social media. Management has a clear direction for the future of the company, aka the metaverse, which is being adhered to. This is a big bet, but the company is a cash flow machine and is able to subsidize R&D into MetaLabs with their traditional “family of apps” and their ad-tech revenue business. Despite the massive operating losses generated by MetaLabs, the company is still generating head-scratching cash flows. The company seemed cheap relative to the rest of FANGMAN and I told investors that I planned to buy more shares. I did, and the stock has gained +22% since then (March 1, 2023).
Advanced Micro Devices $AMD: Semiconductors are my favorite 10+ year investment thesis, alongside healthcare, so I’m naturally intrigued by AMD. Their earnings have been solid, though the company is experiencing a stark deceleration and contraction in gaming. The major investment thesis here is the data center business, which will keep becoming a significant driver of cash flows. Stacked against other semiconductor companies, I think others have better fundamentals in this market environment, particularly when AMD is trading at a price/earnings ratio of 110 at the time of writing. In the month of April, the stock fell as much as -14.5% and I expect to see more volatility & downward price pressures. At a lower valuation, even closer to P/E of 50, I could get interested in purchasing the stock. In the meantime, there are better opportunities within the semiconductor industry that I’ve been buying.
As always, the goal of this report is to analyze the qualitative and quantitative investment thesis in the present moment in order to discern if this company deserves our hard-earned capital, particularly in a world of 5% interest rates.
Before beginning the review of Costco, I ask premium members to please vote on the company that will be reviewed in the next edition of the monthly deep-dive:
Let’s begin.