Motley Fool: Costco One of Best Stocks for 2009

In case you missed it, Motley Fool chose Costco as one of its go-to stocks for 2009:

In my search for companies that will thrive in 2009, I sought specific characteristics that I think will separate the winners and the losers. As we’ve highlighted before, this is a make-or-break holiday season for many retailers, so companies with the following qualities seem more to me like buys for the coming year:

* Strong inventory management
* Manageable debt levels
* Adaptability

Costco nails all of these points. While the company carries some debt on its balance sheet — roughly 25.5% of equity — its interest coverage ratio is 19.4, meaning it can easily pay its debt expenses with cash flow. On the inventory front, Costco excels. By offering a limited selection of items in comparison to grocers, the company consistently turns over inventory 12-13 times per year, meaning it typically receives payment for its inventory before it pays its suppliers. This, in turn, allows the company to alter its offerings quickly.

The “treasure hunt” strategy is the luring factor that brings customers to Costco, aside from its low prices. While the company’s inventory management system is efficient enough to pare back on the higher-ticket items as consumers alter their spending habits, the company actually benefits from downturns. High-end vendors desperate to boost their anemic sales are arranging for their goods to be sold at Costco, which will stimulate consumers to shop there. Even Starbucks (Nasdaq: SBUX) is getting in on the action; it recently made a deal to offer gift cards at reduced prices, after years of turning Costco down.


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