Costco: This Big Box Is Growing

10/24/2012 4:08 pm EST

Focus: STOCKS

Especially of note is a continued international expansion that should add nicely to the warehouse retailer's bottom line, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

I’m going to take advantage of the recent sell-off to add shares of Costco Wholesale (COST) to my Jubak’s Picks portfolio.

I named the stock one of five picks for a US economy that is likely to show slow—but still better than expected—growth in the fourth quarter and into 2013 in my October 15 post.

With the stock down 7% from its September 24 high, and having given back all that appreciation of its recent earnings report and more, I think this is a decent buying opportunity.

Costco popped by almost 2% when it reported fiscal fourth-quarter results on October 10. Same-store sales climbed by 5% on a 4.5% increase in store traffic. That was an especially important result this quarter, since it showed that an increase in membership fees didn’t turn off shoppers.

Operating margins increased by 0.2 percentage points. I expect that margins will increase further in fiscal 2013, as more of that membership-fee increase filters down to the bottom line.

Costco is one of the few big-box retailers to make money on its international operations—which gives the company an obvious path for growth in 2013. Costco plans to open 30 new stores in fiscal 2013, versus 16 in fiscal 2012, and 50% of those new stores will be international. The company gets just 30% of sales from its international stores now.

I calculate a target price of $110 by May 2013 for Costco. The shares pay a 1% dividend.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.

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