A gain of 12.5% in 2018 for shares of Costco Wholesale Corporation (COST) was likely helped by bullish unusual trading activity in the stock. Costco’s shares have been performing very well this year, even in the face of a weak year-to-date (YTD) performance for the consumer staples sector. Costco’s +12.5% gain compares with a -7.59% performance for the Consumer Staples Select Sector SPDR ETF (XLP).
What makes this company interesting is that higher share volumes are accompanying the higher share price this year. With activity like that, it should come as no surprise that Costco stock has trended higher in 2018. By focusing our efforts in looking for companies with great fundamentals alongside potential bullish institutional activity, we have found that we can uncover great performing stocks.
In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation. In 2018, Costco stock has logged eight of these rare signals, with the first bullish signal occurring on Jan. 22. This is on top of the nine signals Costco fired off since September 2017. We want to see bullish activity in the shares alongside solid fundamentals, as this indicates that demand for the stock should increase. (See also: Costco’s Business Model Is Smarter Than You Think.)
In the chart below, Costco stock broke out to new highs accompanied by increasing accumulation. Shares should continue the upward trajectory:
MAP’s process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
[Want to learn how to use additional indicators and data points to analyze stock charts? The Technical Analysis course on the Investopedia Academy includes interactive content and real-world examples to help boost your trading skills.]
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Costco are as follows:
- YTD outperformance vs. market: +11.43% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. sector: +20.09% vs. XLP
- Bullish potential accumulation signals
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Costco has solid earnings and sales growth rates:
- One-year sales growth rate: +8.68%
- One-year earnings growth rate: +11%
- Three-year dividend growth rate: +12.6%
Costco checks the box on strong technicals and fundamentals while showing bullish institutional momentum over the past year. We believe that the current level for the shares is in position for further upside. Costco shares have been powering higher this year, and with multiple unusual institutional activity signals, the stock could be setting up for a continued move to the upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
Costco stock represents a potential buying opportunity for the long-term investor. Given the solid earnings growth, sales growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth portfolio. (For more, see: Why Costco’s Stock Can Rise to Record Highs.)
To learn more about MAP’s institutional signals, please visit our “About Us” page.
Disclosure: The author holds a long position in Costco shares at the time of publication.