According to Jim Cramer, Costco Wholesale Corporation (COST) has managed to adjust its prices effectively
We recently published a list of Jim Cramer’s Hottest 10 Stock Picks. In this article, we take a look at how Costco Wholesale Corporation (NASDAQ:COST) compares to the other stocks recommended by Jim Cramer.
In a recent episode of Mad Money, Jim Cramer talked about what he believes are Wall Street’s biggest failures this earnings season, especially on a day when the Dow fell 141 points and the NASDAQ rose 0.2%. Cramer highlighted the misleading portrayals of the impact of GLP-1 drugs on food and beverage companies, the reluctance to cut prices after the pandemic, the skepticism about AI investments, and the continued belief that
Intel remains dominant in the technology sector.
Cramer argues that companies would gain credibility and potentially increase their stock price if they were more honest about their changing situation, but if they withhold important details, they confuse investors and are more likely to lead to poor decisions.
“If companies would just admit their own changed circumstances, things would be a lot easier for everyone. But who wants to admit mistakes? They earn a lot of credibility by driving up stock prices, but instead their stocks languish while investors try to figure out what’s really going on and expect the worst, not the best,” Cramer said.
In an era filled with misinformation, Cramer emphasized how easy it is to be misled and underscored the need to recognize these gaps. According to Cramer, even though approximately 20 million Americans reportedly take GLP-1 drugs for weight loss and diabetes, food and beverage manufacturers refuse to acknowledge the negative effects of these drugs. They don’t even hint at it. Cramer argues that their denial of the effects of GLP-1 drugs is simply untrue.
“We know that when people take these GLP-1s, they eat a lot less and eat fewer snacks because they suppress their cravings. … These drugs are incredibly effective. The idea that they’re not causing harm to the snack manufacturers is crazy.”
Cramer commented on the rising prices by saying that despite significant price increases during the pandemic, most companies see no need to cut prices. He pointed out that airlines that consistently underperform refuse to lower fares and act as if the price increases never happened.
“There are countless airlines that are performing below average. They simply don’t want to lower prices, but act as if they never addressed the price increases.”
The same is true for hotels and entertainment venues, which have sharply raised their prices during the pandemic and are now resisting lowering them even as demand forecasts are falling. Cramer also noted that many restaurants either claim their price increases have not hurt sales or refuse to acknowledge the need to lower prices.
“They have raised prices dramatically during the pandemic. They will not cap price increases too much, even if forecasts drop sharply.”
In the discussion of AI, Cramer strongly disagrees with Wall Street’s claim that investing in AI is a waste of money. He points out that many believe that large companies that invest heavily in AI-related video chips are not making significant profits and are only investing to keep up with the competition (see Top 33 AI companies to watch out for).
“We are constantly told that none of the big companies that spend a fortune on video chips for AI have seen any meaningful return on that investment. They are only doing it to prevent their competitors from gaining an advantage. That is what we hear all the time. It is absurd!”
Cramer also disagreed with the widely held belief that INTC remains a leader in its industry. He dismissed claims that the company is poised for a major comeback, particularly in the data center space, and that it has a chip that can rival its rivals’ dominance. He pointed out that the company’s financial health tells a different story, citing the company’s decision to cut its dividend last year and suspend the rest this year. According to Cramer, these actions do not indicate dominance, and he warned that this is not the same semiconductor company it used to be, no matter what the company claims.
“I keep hearing that Intel is going to make a big comeback and catch up with the others in the data center space. That the data center has an Nvidia killer in GE-3. That it’s using the chips to take money out of your pocket and extend its dominance. Keep dreaming! Have you seen Intel’s financial statements? Can you read one? Do you think a company that cut its dividend last year and then cut the rest of it this year wants to maintain its dominance?! Look, this is not the old Intel, although we would like it to be. Despite Intel’s assurances, I don’t want to be Intel’s partner.”
A customer browses the aisles of a warehouse through the large range of branded and private label products.
Costco Wholesale Corporation (NASDAQ:COST)
Number of hedge fund investors: 65
Jim Cramer noted that “Costco has been cutting prices,” emphasizing that this strategy is no coincidence behind the strong performance. According to Cramer, Costco Wholesale Corporation (NASDAQ:COST) is among the best-performing companies in its sector because it has been able to adjust its prices effectively.
Costco Wholesale Corporation’s (NASDAQ:COST) membership model provides a reliable source of recurring revenue. With more than 120 million cardholders worldwide, the company benefits from a loyal customer base that appreciates its low prices and bulk purchasing options. In its most recent financial report, Costco Wholesale Corporation (NASDAQ:COST) reported a 10.6% increase in revenue and an 8.4% increase in net income.
Costco Wholesale Corporation’s (NASDAQ:COST) focus on operational efficiencies, including bulk purchasing and private-label products, helps maintain competitive pricing and attract customers. In addition, Costco Wholesale Corporation’s (NASDAQ:COST) expansion into new physical locations and its successful investments in e-commerce have significantly increased its market presence and online sales.
ClearBridge Sustainability Leaders Strategy stated the following about Costco Wholesale Corporation (NASDAQ:COST) in its second quarter 2024 investor letter:
“Consumer goods investments also performed excellently in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to perform well and deliver better-than-expected earnings, helped by strong traffic that resulted in better cost leverage. Customers also appeared to place more emphasis on discretionary purchases.”
Total costs 9th place on our list of Jim Cramer’s stock picks. While we recognize COST’s potential as an investment, we believe AI stocks that stay under the radar promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than COST but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
