Ensemble Capital: “The Beauty of Costco (COST)’s Business Model is its Simplicity”

Ensemble Capital, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund has focused on economic and COVID-related commentary. The fund also covered the notable detractors and contributors to its fourth-quarter investment performance and offered a discussion of an aspect of its investment strategy. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Ensemble Capital Management, in its Q4 2021 investor letter, mentioned Costco Wholesale Corporation (NASDAQ: COST) and discussed its stance on the firm. Costco Wholesale Corporation is an Issaquah, Washington-based big-box store company with a $213.5 billion market capitalization. COST delivered a -15.16% return since the beginning of the year, while its 12-month returns are up by 33.09%. The stock closed at $481.61 per share on January 21, 2022.

Here is what Ensemble Capital Management has to say about Costco Wholesale Corporation in its Q4 2021 investor letter:

“There are a handful of events that drive major changes in people’s shopping routines. Two of these are moving and having children. Naturally, when you buy a new house or have kids, retailers pepper you with emails and mailers containing valuable coupons and offers because they want to become a part of your new shopping routine.

It turns out that a global pandemic is another one of those routine-altering events. In early 2020, as stay-athome and quarantine orders rolled out around the country, shoppers flocked to Costco to load up on essentials like paper products and food and non-essentials like TVs and alcoholic beverages (or maybe these are “essentials” during a pandemic?).

During this abnormal period, Costco proved and reinforced its membership value proposition. If you want your pantry to be well stocked and limit your shopping trips – all the while getting great value for your money – Costco showed it is the place to go.

Membership loyalty, already strong before the pandemic, continued to increase well after quarantines and stay-at-home orders were lifted. A recent survey by Evercore ISI showed that between 2020 and 2021 Costco gained loyalty across every tested demographic by age and income except for incomes below $45,000. Notably, its biggest loyalty gains came from the 18 to 34 and 35 to 54 year old age groups and incomes between $45,000 and $74,999.

The beauty of Costco’s business model is its simplicity…” (Click here to see the full text)

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Our calculations show that Costco Wholesale Corporation (NASDAQ: COST) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. COST was in 55 hedge fund portfolios at the end of the third quarter of 2021, compared to 54 funds in the previous quarter. Costco Wholesale Corporation (NASDAQ: COST) delivered a -1.73% return in the past 3 months.

In December 2021, we also shared another hedge fund’s views on COST in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.