• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Here's My Catch Up Trade Idea for Costco

The firm easily outperformed expected comparable sales for the month of June.
By STEPHEN GUILFOYLE
Jul 09, 2020 | 09:45 AM EDT
Stocks quotes in this article: AMZN, WMT, COST

We all make rookie mistakes, at least sometimes. At least that's what I tell myself when I recognize one in my own actions. I have written several times now about how both Amazon (AMZN) and Walmart (WMT) came through for me and my family during the worst of what New York went through back when that region was the epicenter of the U.S. outbreak of Covid-19. Grocery stores were open. There was nothing on the shelves. The city and its suburbs were truly on its knees. There was no way for a decent spell to purchase the necessities of life. Even food became scarce. E-commerce was survival for those trying to support a family. Amazon has won my loyalty. They were there when I was down. Walmart has won my loyalty. They were there when I was down. I felt that at least in my area, that Costco (COST) , a name that I had been long and very high on prior to the pandemic, had folded under the pressure. Maybe that's unfair. I was sick myself, in fact really sick, and still trying to support a household. I sold the shares in anger. Even though Jim Cramer remained high on the name.

Don't Get Me Wrong

It's not like the other two names hurt me. Amazon, as a matter of fact, has been a grand slam. Should have hung on to Costco though. I knew they were well run. I knew they would get it right. Anger is an emotion. Nothing wrong with that. Allowing emotion into the decision making process without regard to either target price or panic point? That's something rookies do. Fiscal fourth quarter earnings are still a ways off. Costco will not report until September 24th. That said, the firm easily outperformed expected comparable sales for the month of June (which is booked as the five weeks ending July 5th).

These comp sales increased by an impressive 11.5% for June. Estimates were for something between 4% and 5%. Performance was supported across all regions and segments. U.S. sales grew an even 11%, Canadian sales rose by 8.4%, and the rest of the physical Costco planet saw sales rise 18%. E-commerce sales (what got me so angry) saw growth just scream 85.8% higher versus a year earlier. Incredible. Year to date, net sales are now up $136.37 billion, which is 8.1% above last year's performance at the same point. This is despite decreased foot traffic for both April and May. That's impressive. The firm claims that "buy on-line, pick up at store" has become a popular method for purchasing essentials.

On Wednesday evening, I saw that Oppenheimer's five star (according to TipRanks) analyst Rupesh Parikh maintained his 'buy" rating on the name, while increasing his price target from $335 to $355. Parikh goes as far in his comments as to mention the possibility of the firm dishing a special dividend out to shareholders. Thursday morning, another five star name, Peter Benedict of Baird chimed in. Benedict reiterated both his "Outperform" rating and his $335 price target on the name. He also goes out of his way to note that at this point the firm is now "generating the strongest 2-year stack in at least a decade."

The Chart

Chart watchers will note that what we see here is either a breakout from a closing pennant, or something that comes very close to presenting as an ascending triangle. In that case, the pivot becomes the $325 level, and the breakout, despite this recent surge, would still be a future event. Of course pivots provide resistance about as often as they do momentum. Ah, what to do? How to catch up? The shares were trading around $322 ahead of the opening bell.

The Catch Up Trade Idea (minimal lots)

One could....

- Purchase 100 shares of COST at or close to $322, and then...

- Sell (write) one COST October $340 call at or close to $5.

The idea here is to reduce the trader's net basis ($317) to Wednesday's price levels.

Or...

- Sell (write) one COST October $280 put at or close to $4.

This idea is to simply put $400 in the hip pocket. The flipside is the downside equity risk that this investor is exposed to should the share price drop below $276 by expiration.

(Costco and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle was Long AMZN, WMT equity.

TAGS: Economy | Investing | Options | Stocks | Technical Analysis | Trading | Retail | E-Commerce

More from Investing

Progressive's Commercials Are Well Known, But What About Its Charts?

Bruce Kamich
Jul 5, 2022 11:54 AM EDT

Traders could probe the long side of PGR.

Is Tesla Spinning Its Wheels?

Ed Ponsi
Jul 5, 2022 11:30 AM EDT

In addition to company-specific issues, Tesla is also fighting a tough macro environment.

Exxon Mobil Could See Its Shares Decline Even Further

Bruce Kamich
Jul 5, 2022 10:40 AM EDT

Let's check out the charts.

Bear Markets Require a Different Playbook

Bob Lang
Jul 5, 2022 10:30 AM EDT

We need to recognize the conditions are different than in a bull market and adjust our style and tactics accordingly.

3 'Hiding Places' for Investors to Shelter in This Bear Market

Stephen Guilfoyle
Jul 5, 2022 10:00 AM EDT

These stocks have done me right of late, and are in better technical shape than the market.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:01 PM EDT PAUL PRICE

    A Recent Director Buy in Children's Place (PLCE)

    Four of the most recent insider trades in PLCE hav...
  • 07:34 AM EDT PAUL PRICE

    A $525,000 Vote of Confidence on Macerich (MAC)

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login