There are a few strong reasons to be bullish about Costco Wholesale (NASDAQ:COST) stock. In fact, given the structural forces at play in the economy, I’d assert that this is one of the best times to pick up shares.
The bullish case is fairly obvious for Costco given current rates of inflation. In January, it was reported that the annual inflation rate hit 7% in December. That represents a record high since June of 1982.
That should be a boon to the company for a few reasons. But before launching into that, let’s understand why Costco is a solid pay in normal times. That is simply reflected in its dividend.
Costco has long paid a dividend without reductions. In fact, it last recorded dividend reduction back in 2004. Dividend bearing firms are very steady by their nature. So, it was no surprise when Costco announced a 79 cent dividend on Jan. 20. That was exactly in line with the previous three dividends from the company.
My point here is that Costco is a very solid firm based on its history of paying dividends. Those dividends have remained unscathed throughout the pandemic. Now that inflation is top of mind, there is reason to believe investors will flock to the firm for its proven, steady nature.
On top of that — and the truly important reason Costco should rise — is that inflationary times favor it.
Consumers behave differently in inflationary times than they do in normal economic environments. We are all consumers, and when times get tough, we prioritize in order to get by. That means we seek deals. Specifically, we may seek bulk purchases that drive down the unit prices for the goods we pay.
That clearly favors Costco since that is exactly its business model. That should theoretically result in the company seeing higher business volumes. That, of course, results in increased revenues.
Further, Costco sells a wide variety of food and other items. But importantly, in regards to inflation, it sells food staples in bulk. It is safe to assume that if and when inflation rises, consumers will buy greater and greater quantities of meat, grains, vegetables and other basics from Costco because of unit prices.
The basic economic arguments reflect in sales volumes reported by the firm.
Strong December for COST Stock
Costco reported $22.24 billion in net sales for the month of December. That was a 16.2% increase from the $19.14 billion in net sales reported during the same period a year prior. That increase is a product of multiple factors, but inflation, which reached 7% during that time, was certainly one of them.
Company performance for the 18 weeks leading up to the Jan. 2 report was equally positive. Net sales reached $76.34 billion, up 16.6% from the $65.47 billion reported a year prior. All of the firm’s other sales breakdowns look similarly positive and point to the same conclusion: COST stock should currently be sitting in a strong position.
However, Costco has slipped over the past few weeks. It looks like COST stock has slid simply as part of a broader pullback. And that’s probably a buying opportunity.
What to do With COST Stock
Costco has been a strong performer throughout the pandemic. The omicron variant’s emergence is renewing the narrative that makes Costco a buy.
Costco is an inflation play, pure and simple. Consumers are facing that reality. December’s numbers put that in stark contrast. They should be flocking into Costco in even greater numbers based on that alone.
Outside of that, Costco is simply a solid investment because of the scale of its business and the volume it sees. Now is an even better time to realize that strong companies are great investments. Costco is solid anytime, but especially now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.