With a profit model based more on membership fees than product sales, demand for Costco (COST) among large investors remains strong. And after resetting its base count, Costco stock is shopping for a fresh breakout.
XCostco made the latest list of new buys by the best mutual funds, taking in an estimated $284 million.
Top money managers also added fellow retailers BJ's Wholesale Club (BJ), Kroger (KR), Grocery Outlet (GO), Dollar General (DG), Sprouts Farmers Market (SFM) and Murphy USA (MUSA) to their shopping carts.
Within the major discount retailer industry group, Costco trails only Walmart (WMT) in terms of market capitalization. WMT stock sports a $357 billion market cap while Costco has a $237 billion valuation.
But COST stock is showing superior technical strength as it approaches a new buy point. Meanwhile, Walmart stock continues to feel the hit of a nearly 20% crash for the week of May 20 following fiscal 2023 Q1 earnings. Walmart reports fiscal Q2 numbers on Aug. 16.
Top Funds Bet Big On Apple, Costco And These Other Stocks
Costco Membership Fees: An Antidote For Inflation Woes?
The majority of Costco's profit comes from annual membership fees rather than from selling products. The retailer hasn't raised its membership fees since 2017. (As the Wall Street Journal notes, it also hasn't increased the price of its popular $1.50 hot dog since 1984.)
Costco currently operates 833 warehouses, including 574 in the U.S. and Puerto Rico. The warehouse retailer also has 107 stores in Canada, 40 in Mexico, 31 in Japan, 29 in the U.K., 16 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two each in France and China, and one in Iceland.
Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
Amid tensions between China and Taiwan, Costco has acquired a minority interest in Costco Taiwan. On June 30, it announced it has completed a $1.05 billion purchase by a wholly owned subsidiary of the 45% minority interest in Costco Taiwan, a joint venture, from its longtime partners. Costco now indirectly owns all of Costco Taiwan. The company estimates that the purchase will add 1% to 1.5% to Costco's earnings per share.
COST Stock Sets Up Fresh Base Count
In May, Costco reset its base count by undercutting the low in its prior chart pattern. That makes its current cup with handle a first-stage base. The buy point is 552.81.
After hitting a new 52-week high last month, the relative strength line has dipped. Look for the RS line to trend higher as the buy point approaches.
COST stock has retaken its 200-day line, and its 50-day line has started trending higher.
To show demand for any breakout attempt, look for volume to come in at least 40% higher than normal if Costco clears the entry. Also look for Costco's 50-day moving average to get back above the longer-term 200-day line to further confirm renewed technical strength.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
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