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4 “Defensive” Stocks to Sell Now

Defensive stocks are supposed to hold up in a downdraft. These ones won't.

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Costco (COST)

Costco (COST) is a relatively new addition to the defensive category. The company was founded in 1976, but I didn’t even hear about it until the mid-1990’s.

Costco stock COSTThe theory here is that Costco sells staples that people can buy in bulk, so its kind of an extension of the staples concept, but a retailer instead of a manufacturer. It’s a great concept, a great company, with a strong balance sheet and cash flow. It’s set for 12% EPS growth next year and trades at 25x earnings.

But look, the point of a defensive stock is that in a bad economy it shouldn’t fall as much as the overall market. At 25x earnings, COST is already so overvalued that it eliminates that protection.

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