Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Costco Wholesale Corporation (COST), Wal-Mart Stores, Inc. (WMT): Pick Your “Discount” Stocks Carefully

Discount retailers make one think of low-priced merchandise and maybe even low-priced stock ideas. Speaking of which, in recent weeks a bulk shipment of quarterly tidings from discounters has been delivered to investors. The old saw about inclement weather has been the prevailing theme; this year, an unseasonably cold spring supposedly put such a big chill on these retailers that many have had to slash their outlooks for the entire year.

Don’t get distracted by the cold weather, or by the market’s recent rally mode. Macroeconomic factors are also in play, and they’re serious. These factors should continue to have major impacts over the course of the year. One stock in the discount group sports a higher valuation, but investors should consider it the best deal of the bunch.

Costco Wholesale Corporation (NASDAQ:COST)

The cold-weather challenge
Given the backdrop of discount retailers cutting outlooks and making excuses, here’s one major anomaly that gives investors a reason to buy, or at the very least hold if it’s already in their portfolios. Costco Wholesale Corporation (NASDAQ:COST) shares hit new highs after it reported its quarterly results last week. It managed to weather the cold-weather challenge relatively unscathed.

Fiscal third-quarter net income increased by 18.9%% to $459 million, or $1.04 per share. Revenue increased 7.9% to $23.55 billion, and same-store sales increased 5%, including the impacts of currency and gas inflation. (Without these factors, same-store sales jumped by 7%.) Sales from Costco’s membership fees increased by 12%, illustrating that consumers are still more than willing to pay for the privilege of loading up on Costco’s bulk merchandise.

Of course, the fact that Costco Wholesale Corporation (NASDAQ:COST) shares trade at such a premium to those of similar retailers has always been a factor that investors have grappled with and often disagreed on. Costco currently trades at 22 times forward earnings. That’s a far cry from Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT), both of which trade at 13 times forward earnings. Big Lots (NYSE:BIG) trades even cheaper, at 10 times forward earnings.

Costco Wholesale Corporation (NASDAQ:COST) was able to overcome the supposedly dampening influence of chilly temperatures. The warehouse retailer continued to show itself as a strong bastion against uncertainty.

Compare Costco to Big Lots. Big Lots also reported its quarterly results last week; that retailer slashed its yearly earnings guidance, blaming colder weather that suppressed sales of seasonal items like lawn and gardening equipment in the quarter.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.