Supply Chain Issues or Not, Retail Trends Will Likely Move Higher

The economy has been moving strongly past the pandemic, but concerns over inflation and supply chain disruptions have led to some uncertainty. While markets are generally heading higher, one area is likely to continue plugging along at a steady and growing rate.

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  • That space? Retail. Pent-up consumer demand is coming out as the labor market looks to not only stabilize, but do so at higher wages. That bodes well to companies across the retail spectrum.

    Most investors would do well to focus on the big-box retailers that dominate a niche space and can continue to deliver solid returns to shareholders. One such name? Costco (COST), which is about to report same-store sales with a 5-7 percent growth range.

    Costco is unique among retailers thanks to its warehouse club model. The company has a maximum profit margin of no more than 15 percent on any product it sells. Its real profitability comes from selling its annual membership fees. Somehow, this allows the company to sell everything from $1.50 hot dogs to $5 rotisserie chickens and pay its employees well above retail average.

    Action to take: Shares are in a strong uptrend, and aren’t yet at overbought levels. Shares pay a dividend of 0.8 percent. Traders can sometimes get a few pullbacks during the year, and might want to target a starting dividend yield of 1 percent or greater.

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  • For traders, the current uptrend is likely to continue. The October $410 calls, going for about $9.95, can deliver mid double-digit growth in the coming weeks as that trend continues.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.