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Trader says one could be a better big-box pick


It’s a big-box breakout.

Costco and Walmart shares are higher for the year, bucking the sharp market sell-off, with Americans stockpiling as coronavirus lockdowns stretch on.

Though both have broken out, Oppenheimer’s head of technical analysis, Ari Wald, said one has the edge over the other here.

“We like them both. We’re bullish on both Costco and Walmart. Of the two, Costco is the standout,” Wald said Monday on CNBC’s “Trading Nation.” “It’s really based on our bullish view on U.S. large-cap growth but broadly the stock has been on our buy list since April of 2018, and although it has become near term overbought in our relative work as it has outperformed through the sell-off, we still like it.”

Costco is up 5% in 2020, while the S&P 500 has fallen more than 16%.

“The reason [we like it] is that our focus here on the market is on long-term recovery. And we like that Costco has been able to outperform during market rallies in recent years as well. … It’s really one of the few stocks that is also in a consumer staples sector that’s been able to do this. So, we like Costco. It’s a triple A-rated outperform by our fundamental analysts, rates well in our trend work and top down tail winds based on our view on growth,” said Wald.

Nancy Tengler, chief investment officer of Laffer Tengler Investments, said Costco’s fundamentals are strong, but grows concerned after its recent rally.

“We’re out of Costco based on valuation. We got out at the end of last year at kind of the levels we’re at now. We’d owned it in 2017. Loved the story. Loved the fundamentals but the valuation got a little bit rich for us,” Tengler said during the same segment.

Costco’s gains since late 2018 have pushed its valuation to 33 times forward earnings. Comparatively, the S&P 500 trades at 16 times. 

“We’re still in Walmart. It’s one of our largest holdings. Again we don’t necessarily think that the near-term growth in sales is sustainable, but we love the e-commerce store in this particular name. It’s just also gotten a little bit rich, and we’ve actually been trimming back our holdings,” said Tengler. “I wouldn’t be chasing them here. Great companies. Be patient.”

Disclosure: Laffer Tengler Investments holds Walmart. 

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