While not itself a retailer, its exposure to the consumer market through multiple recognized brands, tied to the fact that these products (except Dairy Queen, for good reason) can all be found through both bricks-and-mortar retailers and online, makes for a compelling argument. Again, the key is its diversity, as Berkshire’s exposure extends far beyond just the consumer brands above, available at retail. Add in that it consistently produces operating margins between 10% and 15%, and uses those earnings to add to its stable of cash-producing subsidiaries, and there’s a lot to like.
Foolish bottom line: The price of perfection
Is Costco Wholesale Corporation (NASDAQ:COST) the perfect retail investment? There’s no such thing, really, but it’s pretty close if you ask me. If there was one perfect stock, I’d have to say it’s Berkshire Hathaway. It’s no retail giant, but many of its subsidiaries are popular consumer brands, like Fruit of the Loom, Brooks shoes, and See’s Candies to name a few. Factor in its amazing cash-generating capacity in multiple industries, and it would easily be the one stock to own, if I could only own one.
Wal-Mart Stores, Inc. (NYSE:WMT), however, is still the undisputed king of retail, with annual revenues 2.7 times larger than those of Costco and Amazon.com, Inc. (NASDAQ:AMZN) combined. With that said, there’s only so much room the behemoth can grow, so look for share buybacks to be a significant contributor to EPS growth going forward, and count on seeing the dividend consistently increased in the years ahead, to be the main sources of returns.
But if you’re looking for the kind of future return today that you’d have gotten if you’d bought Wal-Mart Stores, Inc. (NYSE:WMT) in 1985, I would put my money on Costco Wholesale Corporation (NASDAQ:COST). Its predictability, consistent earnings power, even as it continues to grow, offer strong protection to your portfolio. And while I own shares of Amazon, and am also bullish on its future potential, there is clearly much more risk. We won’t know for years, exactly how much of its future growth is already price in to today’s share price. Both Costco and Amazon carry premium valuations, but high quality comes at a premium.
The article Is Costco the Perfect Retail Investment? originally appeared on Fool.com and is written by Jason Hall.
Jason Hall owns shares of Berkshire Hathaway, Amazon.com, and Costco Wholesale (NASDAQ:COST). The Motley Fool recommends Amazon.com, Berkshire Hathaway, and Costco Wholesale. The Motley Fool owns shares of Amazon.com, Berkshire Hathaway, and Costco Wholesale. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited
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