Buy Costco (COST) Stock

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Contributor, Benzinga
April 10, 2021

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Costco (NASDAQ: COST) delivers investors both stability and growth opportunities with one of the strongest brands in the competitive big-box retail segment. 

COST stock benefits from an affluent consumer base, with the average shopper earning a 6-figure salary. And Costco is as much an experience as it is a retail outlet. The bulk discounts draw customers in, but it’s the treasure hunt dynamic that keeps them coming.

Learn how to buy Costco (COST) stock now.

How to Buy Costco (COST) Stock

Listed on the Nasdaq exchange, Costco has been a publicly-traded company since the early 1980s. Amassing a market capitalization of $157 billion, COST is one of the top blue-chip stocks in the retail space. For context, competitors Target (NYSE: TGT) and Walmart (NYSE: WMT) feature a market cap of $100 billion and $382 billion, respectively.

While you probably won’t get rich off buying COST stock, it could be an important component of your long-term portfolio. Because of its popularity, wealthy consumer base and critical core business, the company is unlikely to go under.

Below are the steps to take to acquire shares in this retail industry stalwart.

Step 1: Pick a brokerage.

Before you can add COST stock to your portfolio, you must 1st pick a brokerage. An intermediary that helps retail investors acquire equity shares of their desired companies, a great brokerage can make your journey in the capital markets a pleasant one.

And thanks to the rise of online investment apps, most brokerages today offer similar incentives for you to join, such as commission-free trading. The overriding factors will likely be preference and anticipated development.

For instance, if you’re running a hectic schedule and only invest as a secondary activity, you should probably choose a mobile trading app. On the other hand, if you’d like to develop your investing acumen, a full-service platform may be the most appropriate decision.

Below is a list of best brokers to consider.

Step 2: Decide how many shares you want.

Once you’ve made your brokerage decision, it’s time to figure out how many shares of COST stock to purchase. Mainly, investors choose based on their risk tolerance and their available funds.

Because COST stock is a blue chip, you can comfortably have more exposure than you would a risky investment such as a penny stock. The law of large numbers tends to protect you against severe losses. Long story short, it takes more “energy” to move large-priced stocks. Still, be aware that this dynamic also limits upside potential.

Whatever you decide, make sure to write out your game plan before the opening bell. You should trade based on rational strategies, not the emotions of the moment.

Step 3: Choose your order type.

It’s not enough to know the basic principles of how to buy stocks. Due to constantly fluctuating equity valuations, you must choose from these order types to accommodate for the variability.

  • Bid: The bid is the maximum price a buyer will pay for a stock. It is always lower than the ask.
  • Ask: In contrast, the ask is the minimum price that a seller will take. It is always higher than the bid.
  • Spread: The spread is the difference between the bid and ask price. Mainly, this bid-ask spread represents the profit margin that’s available to market makers, who must assume risk on their books when they acquire shares for the ultimate purpose of distribution to investors. A narrower bid-ask spread (such as what you’ll find in blue-chip stocks) signifies higher liquidity and thus, lower risk. A wider spread (typical of penny stocks) indicates lower liquidity and higher risk.
  • Limit order: If you prefer maximum control and transparency for your stock market transactions, you should elect limit orders. They execute only at a predetermined price. But the disadvantage of this order type is that no guarantee exists that your target stock will reach said price, which could leave your order hanging unfulfilled.
  • Market order: To guarantee yourself a position in your desired stock, place a market order. This order type executes at the next available price. The drawback, though, is that market orders automatically fulfill at rates least favorable to you; that is, your buy order will fulfill at the ask and your sell orders at the bid.
  • Stop-loss order: A protective function for a particular holding in your portfolio, stop-loss orders automatically exit you out of your position at either a predetermined price or the next available price. The latter case may become problematic during a gap-down session, where a session opens at a much lower price than the prior session’s close. In this situation, you could lose out at a lower rate than you wanted.
  • Stop-limit order: To prevent such surprises, you can choose to protect yourself via a stop-limit order. Stop limits execute only at a predetermined price. However, you must be aware that there’s no guarantee your target stock will reach your specified threshold. In this case, you would have been better off having a stop-loss order cut your downside exposure.

Step 4: Execute your trade.

To execute your trade, follow these steps for a market order:

  • Select action type (buy or sell).
  • Enter the shares you want to acquire (or sell).
  • Hit the buy (or sell) button.

Placing limit orders follows the same process above but you will need to include your desired execution price.

For a blue-chip stock like Costco, the difference between market and limit orders is minimal due to ample liquidity. Nevertheless, you may want to place a limit order if you’re dealing with very large sums of money. In this situation, the spread can make a noticeable difference.

On the other end of the scale, if the stock is moving quickly, then a market order may be preferable so that your order request will go through.

Costco Stock History

Because of its large size and influence, many analysts regard COST stock as a bellwether investment. Costco provides a real-time indicator regarding the health of the underlying economy.

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As supporting evidence, the ebb and flow of COST stock matches major events in modern economic history. Back in the mid-1990s, Costco shares soared dramatically but tapered off following the tech bubble bursting. A few years later, COST enjoyed another resurgent period before the 2008 financial crisis put an end to its rally.

Still, after the world economy recovered from the Great Recession, Costco made significant strides up to the present time. Still, the fading of upside momentum recently compared to prior years is a dynamic that you shouldn’t ignore.

COST Restrictions for Retail Investors

No specific restrictions prevent retail investors from acquiring COST stock. But please note that if you are a Costco executive, employee, a family member of such or a person with access to privileged information, you can’t trade based on this non-public data. Please review the law regarding insider trading.

If you are unsure about anything, it’s best to play it safe and consult an attorney specializing in securities law.

Pros and Cons of COST

As a well-established entity, Costco offers myriad benefits for any investor.

Long track record: Publicly traded since 1982, few investments have the track record of steady upside growth and consistent performance across several market cycles quite like COST stock. More than likely, it will not make you rich but it also won’t leave you destitute.

Combines wants and needs: With such a massive retail footprint, Costco offers its members almost everything they could possibly need. Further, the company frequently changes its store layout, engendering the “treasure hunt” sentiment that consumers find so addicting.

On the other hand, investors must recognize that COST stock has its fair share of risks.

Long in the tooth: Although the historical performance of Costco shares impresses prospective buyers, you might consider this to be a negative. That’s because if you’re buying shares now, you’re doing so near the peak of its profitability.

Possible narrative dependency: In 2020, COST stock delivered stakeholders a return of 29%, which is solid for such a mature investment. However, if the COVID-19 crisis doesn’t provide sustained bullishness, shares might risk a correction.

A Dependable Buy for Most Investors

As one of the giants in retail, Costco stock has a track record that makes many publicly traded firms envious. Certainly, you pay a price for this level of stability. But in uncertain times such as this, it’s worthwhile for most investors to consider adding COST stock to their portfolio.

Costco is a mature investment so it’s unlikely to make you rich. Also, shares enjoyed a COVID-19 related boost. If this virus fades out of the picture, COST could shed some market value.

Frequently Asked Questions

Q

Will Costco’s decision to hike its minimum wage impact COST stock?

A

Initially, COST stock tumbled when management decided to raise its starting salary to $16 an hour from $15. However, shares quickly recovered, likely under the assumption that happier employees minimize turnover. This reduced overall labor costs.