Back during the onset of the novel coronavirus, your local Costco (NASDAQ:COST) warehouse store was the place to be. With a mysterious virus circulating throughout the globe and projections calling for an unsightly number of fatalities, most people naturally panicked. And when well-to-do customers panic, they often shop at Costco, which explains the dramatic rise in COST stock in 2020.
Fast forward to the present time and the narrative doesn’t seem that appealing for the bulk retailing giant. Around late February 2020, COST stock found itself up in double-digit territory for the year. In 2021, shares are down 11%, an almost opposite reaction.
Of course, one of the biggest contributors to the discount in COST stock is actually an encouraging development. Thanks to the rollout of various Covid-19 vaccines, new daily infections have come down sharply. It doesn’t take an epidemiologist to recognize the sharp decline from over 300,000 cases a day to under 70,000 is a massive improvement.
Just as importantly, many health officials feared that the last Super Bowl and its associated gatherings across the country could become a superspreader event. While I’m not going to make any strong pronouncements, it appears that we may have dodged a bullet on this one. If that is the case, it demonstrates that society is significantly improving its Covid protocols and mitigation efforts.
That’s great for getting us back on track – I’m sure we’re all wanting as quick of a return to normal as possible. However, this backdrop isn’t necessarily a great one for COST stock, at least in the immediate sense.
Although it’s a cynical argument, without a pandemic, the incentive to buy thousands of rolls of toilet paper and 100 pounds of rice and beans just isn’t as pronounced. Therefore, you can understand why Costco shares are on discount. Nevertheless, it’s a discount you may want to take advantage of.
COST Stock to Rise on the Culture of the New Normal
For one thing, we don’t really know how the pandemic will play out. Though the percentage drop in average cases is the steepest we’ve seen, we’ve also been through two other declines following a strong rise in infections. Each time, complacency about social distancing and mask-wearing contributed to yet another peak.
While I believe we’ve collectively learned valuable lessons on how to manage this pandemic, we just don’t know what will happen next. Therefore, the Covid-fueled narrative, while weakened, still remains valid for COST stock. Plus, the emergence of new strains of the SARS-CoV-2 virus has everyone leery.
In other words, it’s better to be prepared – you just never know what’s going to happen next. Unfortunately, we’re getting a taste of that via the Texas winter storm.
As you know, Texas was hit with unusually chilly weather, which caused significant demand for energy. According to the Texas Tribune, the “state’s electric grid operator lost control of the power supply,” leaving millions without power.
Even worse, affected residents couldn’t get access to running water. When they did, they had to boil it for safety concerns. Therefore, the precious commodities that we take for granted – fresh water and products of sustenance – were in very short supply. You can bet that the impacted will never forget this lesson: to always have basic supplies at the ready.
Logically, this supports longer-term upside for COST stock.
But it’s not just Texans that are having a rethink about bulk retail. Millions of others have watched what happened and will likely adopt a culture of preparedness. When Covid struck, almost everyone was blindsided. What happened in Texas is just another reminder that you must be prepared for emergencies.
Maybe this wasn’t a top priority before 2020. By now, everyone should have received the memo.
Economic Reality Supports Costco
Finally, another reason to have confidence in buying the dip in COST stock is the core consumer base: the average Costco shopper makes $100,000, which is significantly more than the competition. Whatever happens to the economy, the Costco shopper is basically at the back row of the firing line.
No, COST stock isn’t going to make you rich. But this is a great name to put into your portfolio as a potential backstop for this highly variable environment.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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