Economist - Investment strategist - Portfolio manager – Author - Editor of THE PETERDAG PORTFOLIO STRATEGY AND MANAGEMENT on Complimentary subscription is available.Nationally recognized speaker on business cycles George Dagnino, Ph.D. XME would be a much better investment in this instance. However, COST is likely to underperform the market if the business cycle keeps gaining momentum. Although COST has proven to be a superb stock to hold over the long-term, it shows an even more attractive performance when the business cycle slows down thus becoming an excellent defensive position for a portfolio. The ratio rises, however (meaning XME is stronger than COST) when the business cycle strengthens as it is happening now. This ratio declines (meaning COST is stronger than XME) in the slowdown phase of the business cycle (see also my earlier articles on this subject). Our business cycle indicator is graphed in the lower panel. The above chart shows in the upper panel the ratio XME to COST. This ETF outperforms SPY when the business cycle rises, signaling a strengthening economy. The cyclicality of COST becomes even clearer when one compares its price to the price of XME (metals and mining ETF). It outperforms SPY when the business cycle declines. The graphs show the defensive nature of COST in an investment portfolio not only because of its low beta but also because of its performance during a business cycle.Īt least since 2005, the above graphs show COST tends to outperform the market during a downturn of the business cycle and during recessionary times as we had in 2007-2009. The above chart shows in the lower panel our proprietary business cycle indicator updated in every issue of our The Peter Dag Portfolio Strategy and Management. The cyclicality of the overbought-oversold pattern is remarkably similar to another important cycle – the business cycle. For instance, 2009-2010, 2014, 2016-2017 have been periods when the stock has underperformed SPY. There are periods when the price of the stock pauses and underperforms the S&P 500. Of course, no stock goes up on a straight line. COST tends to outperform the market when the overbought-oversold indicators declines to -7.5. In other words, COST started underperforming the market when the overbought-oversold indicator reached overbought levels – as it is now. The interesting feature of this gauge is periods when the stock outperformed or underperformed the market coincide whether the stocks was oversold or not. The lower panel of the above chart shows an overbought-oversold indicator. The first step is to look at the performance of the stock compared to the S&P 500 by taking the ratio of COST to SPY (see above chart – above panel). Is the performance of the stock dependent on the fortunes of the economy and if so – when? The way to answer this question is to approach the issue from a different angle. In other words, when is the stock set to outperform the market? The question is whether this is the right time to own the stock. Its forward yield of 2.80% adds to this superb investment. What makes this large multinational company unique is its superb market performance and its low volatility with a beta of just 0.67. It offers branded and private-label products in a range of merchandise categories. In this article I would like to offer a different way to look at the company and the price action of its stock.Ĭostco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It was an in-depth look at the stock – professional and well written indeed: “ Where Fundamentals Meet Technicals: Stocks And Commodities.” I read a recent analysis of Costco ( NASDAQ: COST) on Seeking Alpha.
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