Costco: A Gold-Standard Stock That Keeps Giving

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This article is part of our Real-Money Stock Picks series.

Costco (Nasdaq: COST  ) continues to run the kind of business that makes its shareholders very, very happy. Yesterday's quarterly tidings helped shore up the thesis that landed the discount retailer in the real-money portfolio I'm managing for it's a gold-standard stock.

Fiscal fourth-quarter sales glittered at Costco. Total revenue jumped 14% to $31.52 billion. Granted, sales and margins were bolstered by an 18% increase in the fees Costco charges for membership. Still, that doesn't seem to be chasing away customers; same-store sales were impressive, jumping 5% in total and 6% here in the U.S.

Costco's fiscal fourth-quarter net income increased 27.4% to $608 million, or $1.39 per share.

The climate's difficult for retailers these days. (Nasdaq: AMZN  ) (which also has a place in my real-money portfolio) has exhibited growing power and influence to help tear down plenty of companies like Best Buy (NYSE: BBY  ) , Barnes & Noble (NYSE: BKS  ) , and Staples (Nasdaq: SPLS  ) . Many big-box retailers have lost differentiation in the bricks-and-mortar world. In the physical retail realm, to innovate is the strongest way to differentiate -- and survive.

Costco's always been innovative, though; its low prices have a flair, which is that its inventory is always changing and what's there today might not be there tomorrow. In addition, Costco offers deals, but its products are often high-end and high-quality. 

I considered Costco a socially responsible stock to include in my real-money portfolio because it treats its workers well, and also helps small businesses get supplies at low, low prices.Costco's employee turnover is very low for the retail industry, which isn't known for the kinds of benefits and wages Costco provides. Such elements are good for overall economic well-being in the U.S.

I believe Costco is a great long-term stock, but I don't find its current price all that attractive; I'd rather wait for some weakness before buying more shares of this high-quality company. However, even at its current premium price (Costco trades at 20 times forward earnings), it's a better buy than Best Buy, Barnes & Noble, or Staples.

That's despite the fact that Best Buy's trading at just six times forward earnings and Staple's got a forward price-to-earnings ratio of eight. (Barnes & Noble isn't even expected to be profitable for quite some time.) Costco's got staying power. These three companies are facing a difficult competitive landscape and even industry disruption, and their shares are "cheap" for a reason.

The long term looks bright for Costco, but temporary weakness in its share price would make a better opportunity to buy shares of this high-quality company.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward looking and capable companies will survive, and they'll handsomely reward those investors that understand the landscape. You can read about the 3 Companies Ready To Rule Retail in our premium research report. Uncovering these top picks is free today, just Click Here to read more.

Alyce Lomax has no positions in the stocks mentioned above. The Motley Fool owns shares of, Best Buy, Costco Wholesale, and Staples. Motley Fool newsletter services recommend, Costco Wholesale, and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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