2 Reasons to Like Costco Stock Next Month

COST stock typically outperforms during Labor Day week and the month of September

by Patrick Martin

Published on Aug 29, 2019 at 2:32 PM
Updated on Aug 29, 2019 at 2:45 PM

Costco Wholesale Corporation (NASDAQ:COST) has been in focus this week, after the company's grand opening in Shanghai, China, drew frenzied crowds -- so big, in fact, the retailer had to shutter the store early on Tuesday. COST stock is trading around $296.15, at last check, a chip-shot from its Aug. 28 record high of $299.95. What's more, shares of the bulk retailer could hit that elusive $300 mark in September, if past is precedent.

For starters, Costco stock is one of the 25 best S&P 500 (SPX) stocks to own during Labor Day week, looking back 10 years. Stocks had to have at least eight years' worth of returns to make the list, which was cultivated by Schaeffer's Senior Quantitative Analyst Rocky White. COST has generated a healthy average return of 1.4%, and has ended the week higher 80% of the time.

If that's not enough, then there's the stock's penchant for big gains in the entire month of September. According to White, COST is also one of the 25 best stocks to own in September, looking back 10 years. The stock has ended the month higher 90% of the time, averaging a healthy one-month gain of 4.1% -- good for fourth best on the list. A 4% pop by the end of September would put Costco stock around $308 -- uncharted territory.

The security is no stranger to upside moves, though, having added 45% year-to-date, with pullbacks this summer contained by its ascending 50-day moving average. And, after enjoying its best single-session percentage gain since March on Tuesday -- when the aforementioned Shanghai store opened -- COST is now pacing for its fourth straight win.

Daily Stock Chart COST

Options traders are expecting more short-term upside, at least. At last check, 23,000 calls have already changed hands -- double the normal amount, and volume pacing for the 97th percentile of its annual range. Sure enough, there is activity around the weekly 9/6 300-strike call, with buyers expecting COST to top $300 by the close next Friday, Sept. 6, when the options expire.

This call bias is nothing new, though. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Costco's 10-day call/put volume ratio of 2.73 not only indicates bought calls have more than doubled puts in the last two weeks, but the ratio ranks in the 100th annual percentile, meaning calls have been bought to open over puts at a highly accelerated clip.


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