Relative Strength in Consumer Staples
Tech darlings remain weak, as is typical for September seasonality, which causes me to search for relative strength elsewhere.
Consumer staples are at all-time highs, as relative strength in this space continues to be strong. Of course, I don’t want to buy something already at high, but I want to look for opportunities in this space.
Costco
One of my favorite spots in the consumer staples sector is Costco. First, I love shopping there and strongly believe in investing in companies where you fully believe in their products and services. As an investor, you’ll always pay closer attention to companies you’re familiar with versus ones you don’t have context for.
For example, I could go to Costco at 1 pm on a random Monday, and it is still packed, almost as though it’s Saturday afternoon before a big game. Since I shop there, I notice trends like this without it being necessary to dive into their financials over the weekend. This is the kind of insight I’m talking about.
Costco is one of my long-term investments, so I’m always eyeing the chart. There have been a few exciting updates with Costco recently, including beginning to sell gold bars, raising membership prices, and continued growth in members and overall cart values. This means that Costco not only continues to have more members sign up but they spend more money there, increasing their membership dues.
The addition of gold bars was genius, which drove millions of dollars of sales when consumers were highly concerned about inflation. Inflation is yet another reason to shop at Costco, as the prices in the grocery stores for a tiny amount of food have skyrocketed! I switched almost all of my grocery purchases to Costco versus a regular chain as prices have continued to increase, and I know I’m not the only one!
Anyway, as I’m sure you can see, I love Costco!
Let’s look at the chart:
Costco Chart
There are a few notable features on this chart, including:
- Earnings are coming up on 9/26/24
- Costco has a daily and 195-minute squeeze
- Costco has beaten earnings 10/12 quarters
- Statistically, Costco doesn’t run into earnings, though it has the last several quarters after it announced gold bar sales
- Costco doesn’t typically move very much over the report, as there aren’t significant surprises
What does this mean? While Costco doesn’t fit the mold of something like Nvidia, where it will statistically rally hard going into earnings, there is a recent trend of rallying into earnings combined with solid fundamentals on top of a bullish trend and relative strength. This means that it could be worth a short-term trade, especially for something slow and steady like selling put credit spreads. I’m not expecting a massive breakout, but at least trend continuation can be useful in the options market.
Of course, I’m holding and looking for more spots to add as far as my long-term stock! I wouldn’t mind continuing to the dollar-cost average because I still think that even though it’s gone up so much, I still have additional upside targets and long-term growth potential.
What about upside targets? Costco is currently trading at $893, and I have short-term targets of $925-950 and a longer-term target of $1,000.
