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Why Costco is the ultimate coronavirus pandemic stock to own

Brian Sozzi
Editor-at-Large

Thanks to the coronavirus pandemic, the lines are longer than normal right now at Costco for bulk purchases of soup, toilet paper and chicken.

And to many top minds on Wall Street, that makes Costco’s stock (COST) still one of the best names to own in this insanely unpredictable market. Well that along with Costco boasting more than $7.7 billion in cash, a very reasonable debt load and a 1% dividend yield (which looks great in the era of 0% interest rates).

The sell-side optimism comes even as Costco’s stock has gained 5% during the past three months of broad market upheaval. Further worth mentioning is that because of its relative safe-haven status at present, Costco’s stock trades on some of the richest valuation multiples in history per Yahoo Finance data.

Yet, the buy button on Costco’s stock should continue to be slammed down, strategists say.

“Costco is what we call at Oppenheimer a triple play. It looks good on the charts and fits one of top macroeconomic themes, which is U.S. large cap growth,” said Oppenheimer senior analyst Ari Wald on Yahoo Finance’s The First Trade. “I think what is a standout for Costco is I don’t think you will get left behind in this stock if the market starts to recover again. It has been able to outperform during market rallies as well.”

Shoppers line up to enter a Costco store, Friday, March 20, 2020, in Tacoma, Wash. Consumers continued to stock up on food and other items as officials urged people to stay at home to slow the spread of the new coronavirus. (AP Photo/Ted S. Warren)

The Street will get another taste of how Costco is faring amidst the coronavirus pandemic on Wednesday evening. Costco will release its monthly sales result for March, and the gains could be huge due to consumers hoarding essentials. Instinet retail analyst Michael Baker projects Costco’s U.S. same-store sales exploded 25% in March. International sales are expected to increase by a similar amount to the U.S.

“Given its bulk retailer pure-play status, we see Costco as the primary beneficiary of widespread Covid-19 related consumer stockpiling, which we think will add to the momentum of its extremely robust sales growth of late, as Food and Sundries (40%) and Fresh Foods (13%) items together accounted for 53% of COST's total net sales in FY 19,” CFRA analyst Garrett Nelson wrote in a note to clients. “Additionally, we see the possibility of a special dividend payment and are bullish on its China growth potential.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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