4. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 55
Costco Wholesale Corporation (NASDAQ:COST) owns and runs membership warehouses. Securities filings reveal that Bridgewater Associates owned over 915,635 shares of the company at the end of December 2021 worth $519 million, representing 3.02% of the portfolio. During the fourth quarter of 2021, the fund increased its stake in the firm by 8% quarter-over-quarter.
There is positive hedge fund sentiment around Costco Wholesale Corporation (NASDAQ:COST). At the end of the third quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $4.39 billion in Costco Wholesale Corporation (NASDAQ:COST), up from 54 in the preceding quarter worth $4.32 billion.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ:COST) was one of them. Here is what the fund said:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
