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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  • 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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