Following the first major decline in novel coronavirus cases, the impetus for Costco Wholesale (NASDAQ:COST) shares began declining. Though demand was still high for essential products, a flattening of the infection curve meant that eventually, COST stock would trade on its pre-pandemic fundamentals. Bear in mind, those are good fundamentals to trade on. But now, the narrative may again be shifting.
As you know, Covid-19 cases have reached fresh records in terms of new daily cases. Moreover, the case increase isn’t just a nominal push but rather involves a spike in hospitalizations. Conspicuously, “Texas had more than 8,000 hospitalized Covid-19 patients on Sunday, a record number of hospitalizations and one of the highest in the country, according to a CNBC analysis of data compiled by the Covid Tracking Project.”
Obviously, this isn’t the news that many had hoped for. But the resurgent struggle bodes very well for COST stock. Yes, it’s no doubt a cynical argument. However, consumers will likely shift back to a pandemic mentality.
Back when the coronavirus first struck us, most Americans immediately hunkered down, eschewing their usual shopping behaviors for core essentials: food, water, masks (if available), cleaning supplies and of course, toilet paper.
It wasn’t just older, wiser shoppers that shifted their mindset on a dime. According to a survey by Acosta, 31% of the Generation Z and millennials changed their grocery shopping behavior because of the pandemic. This represented the biggest delta among the surveyed generations.
Furthermore, if this resurgence of cases worsens significantly, COST stock is very well positioned. Since shoppers have already gone through this mess once before, it wouldn’t be the biggest hassle to do it again.
Affluent Shoppers Will Benefit COST Stock
During the initial wave of infections, Costco saw huge, Black Friday-like crowds form hours before opening. It got to a point where management had to adjust store policies to avoid massive congestion.
On one hand, that’s an unenviable challenge, especially in the era of social distancing. But on the other, this explosive demand proves the resiliency of the Costco brand. No matter what’s going on, shoppers can’t get enough of the warehouse shopping experience. Naturally, this is a net positive for COST stock.
But in my view, one of the biggest strengths of this retailer — and why I believe you can buy into it for the longer term — is its generally affluent membership base. Depending on what source you use, the average income of a Costco member is at or just under six figures.
In any environment, you always want to have consumers or clients that are financially stable. But that’s double the case for an unprecedented pandemic.
By now, you’ve had a chance to digest the latest jobs report for June. While many folks have played up the percentage month-to-month increase in jobs added, the reality is that the U.S. economy still has a long way to go. As things stand now, the unemployment rate is still a staggeringly high 11.1%.
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However, the American labor force doesn’t individually feel the joblessness crisis equally. When you break down the jobs report by education attainment and age bracket, you’ll notice that the pain is distributed disproportionately toward high school-only educated workers and those under 20 years.
Logically, you’d expect this since the crisis has mostly impacted high-contact industries, such as restaurants and certain trades. But college-educated workers have been able to operate remotely, hence their lower unemployment rate.
Another Catalyst for Costco Possibly on the Way
Of course, the jobs lost among educated workers is uncomfortably high relative to the pre-pandemic years. However, they’ve been the least affected in this calamity, providing critical insulation for COST stock.
Better yet, we may have another catalyst over the horizon that could lift Costco: The prospect of another round of stimulus checks.
Following the surprisingly robust May jobs report, some Republicans were not eager for payouts to the public. However, another round is likely the best weapon conservatives have given recent opinion polls. It would mean that hard-hit consumers will use that money for essential needs, including groceries.
And this could conceivably help COST stock, even though Costco caters to a more affluent base. For one thing, not everyone who shops at Costco is loaded. Second, if the second round features the same staggered income cutoff like the first time, many well-off households could see extra cash in their bank accounts.
Why wouldn’t they spend on that on a Costco splurge? After all, that’s what they were doing before the crisis happened.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
