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3 Reasons to Buy Costco

In the video below, Fool analysts Isaac Pino and Austin Smith take a look at the bull case for Costco Wholesale (NASDAQ: COST  ) .

Costco offers a terrific value opportunity for customers, and that translates into success. It does not spend on "frivolous" expenditures that other retailers do, such as advertising, marketing, store signs.

That no-frills model allows Costco to deliver goods almost at cost to its members, then make money from membership fees. Those fees make up only 2% of its revenue, but 77% of its operating income, Isaac says.

Costco also has a great combination of pricing power and buying power. In Nov. 2011, Costco raised membership fees by 10%. A year later, there was no appreciable loss of membership, Issac says. That means it can pass along the costs of goods to members.

And while it may be a smaller company than Walmart (NYSE: WMT  ) , Costco has great buying power because it does not stock as wide a variety of goods.

Costco also has great intangibles -- fantastic service and well-trained management, often groomed from within the company.

Costco Wholesale's low prices haven't just benefited customers -- shareholders have walloped the market, returning 11,000% over the past two decades. However, with prices near all-time highs, is the ride over for Costco investors? To answer that and more, we've compiled a premium research report with in-depth analysis on Costco. Simply click here now to gain instant access to this valuable investor's resource.

The relevant video segment can be found between 2:52 and 6:28.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 18, 2013, at 6:02 PM, siliconflux wrote:

    I am a big fan of Costco. The company is not only intelligently led at the top, but the employees I talk to are always incredible enthusiastic about their treatment, salary, stock options, and other benefits.

    Also, as someone who has spend a lifetime in electronics and as someone who over analyzes every product I buy, I am very surprised when I see a company pre-screen their products before I even have to. The average consumer may not notice this, but every computer, TV and device Costco places on the shelves is specifically chosen for quality/performance.

    That being said, Costco is overpriced and there are definitely better performing stocks to add to your portfolio.

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Isaac Pino
TMFBoomer

Isaac covers the companies that constantly push the world forward, from the engines of innovation like GE and Google to the rule breakers like Chipotle and Whole Foods. He admires the leaders that embody the philosophy of Conscious Capitalism.

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