Trade COST on Wednesday’s Earnings

Earnings news could push up this fundamentally-strong stock

   

Recommendation: Trade COST on earnings news tomorrow

2012 12 11 cost 300x130 Trade COST on Wednesdays Earnings
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We like calls on Costco (NASDAQ:COST) now before their earnings report tomorrow at 7 a.m. The stock is at a support level (when adjusted for the special $7 dividend paid out last Thursday) and could jump back up to new highs following the report.

Since last Thursday, it may have looked like COST stock gapped way down. However, that “gap” will evaporate in most charts when they are adjusted for COST’s special dividends. The chart for COST shares since Nov. 27 will look much more flat once that adjustment is done. COST’s special $7 dividend was unusual in its size and in the makeup of its ownership compared to other firms that also announced special dividends this month. COST’s management are not also the major shareholders so the dividend is a reflection of confidence rather than just profit-taking before the fiscal cliff.

Lower and mid-range retailers have been very mixed this shopping season with some big winners and losers. In general we are optimistic about COST because of their dominant position in the sector and strong fundamentals. We also expect that management is going to need to reassure investors about their outlook so that dividend financing does not become a factor for bears.

Recommendation: Trade COST on earnings news tomorrow

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.


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