TLDR
- Jim Cramer declared Costco (COST) a “must-buy” stock despite recent market volatility
- Costco shares fell 6.20% despite strong Q2 earnings with considerable year-over-year growth
- The company has delivered a 227.72% total return over five years with annual profit growth of 13.9%
- COST’s earnings growth of 12.3% last year significantly exceeded the industry average of 3.6%
- Recent developments include Costco Teamsters labor negotiations and new product launches
Costco Wholesale Corporation has seen its stock price decline by 6.20% in recent trading, even as the company reported strong second quarter earnings. The drop comes amid broader market volatility and concerns about potential tariffs.
“This is the age of Costco!” declared CNBC host Jim Cramer during a recent appearance on Squawk on the Street. Cramer identified Costco as one of his top picks in the current market environment.
The retail giant has demonstrated solid financial performance, with sales and revenue showing notable year-over-year growth in both the most recent quarter and the first half of the fiscal year.
Over the last five years, Costco shares have delivered an impressive total return of 227.72%. This performance has been fueled by consistent earnings growth, with profits increasing annually at a rate of 13.9%.
The company’s earnings growth has outpaced industry averages. Specifically, Costco’s earnings grew by 12.3% last year, far exceeding the Consumer Retailing industry average of 3.6%.
Despite the recent price decline, Costco maintains a strong financial foundation. The company boasts a robust return on equity of 29.8%, highlighting its efficient use of shareholder investments.
Cramer’s endorsement of Costco comes amid his broader commentary on market conditions. During his CNBC appearance, he stated, “I would rather be in tech than I would say, you know except for Walmart and Costco, those are the ones that you buy at this moment.”
The recent stock market downturn saw the S&P index lose $4 trillion from its February peak. This decline has brought the index lower than it was following President Trump’s election victory.
Cramer’s comments on Costco were made as part of a larger discussion about tariffs and their potential impact on the market. He expressed support for tariffs but suggested that President Trump’s approach to messaging could be improved.
“You gotta speak softly and carry a big stick,” Cramer advised, referencing Theodore Roosevelt’s foreign policy approach. He contrasted this with what he described as Trump’s tendency to “speak loud with no stick.”
Trump is being “soft on tariffs”
The CNBC host argued that American trading partners have been “ripping us up for ages” and suggested that Trump is actually being “soft on tariffs.” He believes a more tactical approach would be more effective.
While Costco’s share price has declined, a number of factors beyond company performance may be influencing investor sentiment. These include broader economic uncertainties and market reactions to tariff concerns.
Internal company developments may also be weighing on the stock. The company is currently engaged in labor negotiations, as highlighted by a January 2025 vote by Costco Teamsters.
Additionally, the retirement of Costco’s CFO represents a significant leadership change that may be contributing to investor caution despite the company’s strong financial results.
Costco continues to expand
On the product front, Costco continues to expand its offerings. The recent launch of Chef José Garces’ Yucatan Chicken in Costco locations demonstrates the company’s commitment to product innovation and customer satisfaction.
According to data from Q4 2024, Costco was held by 96 hedge funds, indicating strong institutional interest in the company. This metric is often viewed as a positive indicator of a stock’s investment potential.
Despite trading at a high price-to-earnings ratio compared to industry and peer averages, many analysts view Costco’s premium valuation as justified by its consistent performance and growth prospects.
The retailer’s discount business model appears well-positioned in the current economic climate, where consumers are increasingly price-conscious. This may explain Cramer’s enthusiasm for the stock despite broader market concerns.
“These are the ones that you buy at this moment,” Cramer emphasized, highlighting Costco’s defensive qualities during periods of market uncertainty and economic pressure.
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