With inflation surging, the Federal Reserve prepared to raise rates, and Russia becoming increasingly belligerent, there are few places for investors to seek shelter as stocks lose their rose-colored optimism. Costco Warehouse (NASDAQ:COST) stock is one exception.
In a consumer-driven country, it isn’t about whether people spend their money. It’s more a question of where they spend their money. You can be sure that some of the latest hot trends in investing are losing the headlines and their investors.
SPACs are disappearing as fast as Greenland’s ice. Meme stocks no longer fill the financial headlines. Buy now pay later (BNPL) financing options, once the new hot financing option, are racking up big debts for BNPL providers.
Even after the massive movement of Bitcoin (BTC-USD) and other cryptocurrencies — and the broader decentralized finance (aka, DeFi) model — are taking a breather as all those optimistic Millennials and Gen Xers are realizing that boom markets bust, even virtual ones.
COST Stock Makes Sense
This kind of thing happens is every bull market. Things run fast and then people start buying just about anything. During the dot-com bubble, investors were buy optical networking companies with no earnings and little revenue because it was “the future.”
Major telecoms collapsed as mobile phones took hold. They were right on the tech, just about decade too early to save themselves. Conservative income and total return investors were told that “growth was the new income.” Brokers were getting their octogenarian customers out of utilities and into internet stocks.
In the runup to 2008, the situation was similar. Everyone was refinancing at massive valuations and getting free money from mortgage companies battling for business. You could get a refinance done in a couple weeks — and that was before online automation!
But those good times tend to end in tears for many.
And assets like COST stock tend to only start to make sense to most investors after the hot, sexy stocks are shattered by market fundamentals, again.
New Generations, Same Needs
One number I stumbled upon a couple months ago has really stuck with me. We tend to hear so much about the economic power of baby boomers, yet more than half the U.S. population are now millennials and younger generations.
That means they’re coming into economic power and their realities will increasingly drive U.S. consumer behavior. And that’s why COST stock remains compelling.
These generations have been saddled with massive college debt that has affected everything about their consumption habits. Low credit scores means it’s tough to pay rent or buy a car much less afford a house and grow a family.
It means they’re frugal. And where did they shop when they were at university? Costco. Buying bulk also means less driving, which takes its toll at the gas pump these days.
The fact is, common sense and frugality aren’t generational concepts. They’re ideas that permeate all levels of society, and COST stock is a huge beneficiary when economic times get tough.
COST stock is up 65% in the past 12 months and it has virtually no short position against it. In a market that has a distinct downward trend, that’s pretty impressive, especially given its success in the past year. And year to date the stock is down 4%, which means it’s on sale.
This is a good time to start buying into COST.
On the date of publication, GS Early 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.
