I. Conservative Recommendation
Costco Wholesale (COST)
A recommendation in Smart Money Masters, Costco is Charlie Munger’s favorite stock and it tumbled 9.76% over the past week on news that Amazon.com is taking over Whole Foods.
Both Goldman Sachs and Deutsche Bank (DB) downgraded Costco, saying the competitive advantage from its food business is at risk due to Amazon. DB reduced its price target for the company to $172 from $187.
Not everyone on Wall Street is jumping ship. Cowen Group reiterated its outperform rating and $190 price target, saying Costco will survive Amazon’s onslaught.
Although the dust has yet to settle, I think this is a textbook case of a market overreaction and a buying opportunity.
II. Aggressive Recommendation
Walmart Stores (WMT)
A recommendation in Alpha Algorithm, Walmart also fell 5.01% on news of the Whole Foods acquisition.
That said, the rationale for buying Walmart is the same as for buying Costco Wholesale (COST) above. It is more “aggressive” in the sense that Costco has a more loyal customer base.
Nicholas A. Vardy