Costco and Home Depot Are Recession Winners — Which Is a Better Stock Buy?

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“Actually, we prefer Lowes (LOW). But I'll elaborate on HD and COST too.

We asses COST's forward PEG ratio to be around 2.9 while HD's is near 2.1. Lower PEGs are better, and 1.0 is a good target for typical stocks. However, very stable businesses can justify higher PEGs, particularly if they pay a consistent dividend. Both HD and COST qualify. While neither looks compelling from this valuation metric, the market prices them as safe, stable, and still-growing businesses. (We see LOW's fwd peg at 1.44)

Investing is about more than finding a single valuation number. If it were that easy, a simple spreadsheet would be the best investment manger. Both companies exhibit numerous qualitative measures of investment quality. COST appears to have the edge in market structure. HD and LOW are basically playing in a duopoly, but new entrants like FND appear to be on the rise. COST is in a league of its own. Some analysts consider WMT and TGT to be competitors, but COST's business really is unique. I don't see any serious competitors.

Charlie Munger, who works with Warren Buffett, also loves COST despite high valuations. Last year he said: I'm not saying I'm buying Costco at this price. But I'm certainly not selling any."

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