VIDEO: Costco Just Got a Major Boost From a Competitor

In today’s Daily Rundown video, Chris Versace explains how quarterly results from BJ’s Wholesale Club BJ pave the way for next week’s quarterly earnings report from Portfolio holding Costco COST. 

We also explain why we’re encouraged by where shares of Hinge Health (HNGE) and MNTN Inc. (MNTN) are trading following their IPO pricing as it relates to the larger IPO market. 

Chris also discusses why the market being intermediate-term overbought is keeping us on the cautious path near-term. 

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. It is Thursday, May 22. I hope you enjoyed the Yahoo Finance videos that we shared with you on Tuesday and that you found my podcast conversation with Jay Woods that we shared with you yesterday extremely helpful. If you haven't seen either, don't fret. We will be sharing some links to both of those in tomorrow's weekly roundup.

Let's get to some stuff that's going on today, though. Last week, this week, next week-- they're all very big for retailers. You've been seeing us sharing our different comments with you. And whenever we think about this wave of retailers, we always think about our shares of Costco.

And with that in mind, this morning, Costco's competitor BJ's reported. And their comparable club sales increased by 1.6% year over year for the quarter. And their comp club sales, excluding gas, increased 3.9%, with the company saying that they got some traffic growth. Now, on the one hand, when we size that up against some of the other comp sales numbers we're seeing for retailers, yes, it does appear that BJ is winning some share. However, when we step back and we take a look at Costco's adjusted comp sales for March and April, well, it is extremely clear who is really taking consumer wallet share.

Remember, their adjusted US comps were up over 7% in April and nearly 9% in March. So as we think about those data points and what we're hearing from other retailers, I do think that all of this is setting up for a very nice quarterly earnings report from Costco next week. And remember, in addition to the company continuing to win consumer wallet share and continuing to open additional warehouse locations, we should start to see more benefits of the price increase that took last year flowing through that very high-margin membership fee revenue when they report the quarter. But even more of that should be hitting in the second half of the year. So we continue to like Costco for the long term.

And later today, tomorrow, and early next week, we're going to get results from more retailers-- Ross Stores, Deckers Outdoor, Ralph Lauren, Macy's, Kohl's, Gap, Ulta Beauty, and Best Buy. All of that is going to allow us to get a really good handle on what we think Costco is poised to say when it reports later next week. I also wanted to quickly follow up with you on the alert that we had out today, talking about the IPO market. We talked about the hinge IPO. We talked about the MNTN IPO and where they priced.

Now when we look after those stocks have opened up for trading, well, Hinge opened up near 40. That's much higher than the 32 that it was priced at for the IPO transaction. And MNTN, last I looked, those shares were trading around 21, also nicely ahead of the $16 IPO price. Those are very, very nice initial moves. But let's remember we want more than the initial trading day as a sign of confirmation that the IPO window is likely to open and bring other deals to the market that will benefit our shares of-- you guessed it-- Morgan Stanley and Bank of America.

Looking back-- ServiceTitan-- shares have performed well. That was a IPO earlier this year. CoreWeave-- even members are asking me in the comment section about CoreWeave. And given the strength that we've seen, that stock is up over 100% plus from where it priced its IPO at $40. Remember, there was some difficulties right around the timing of that IPO.

But when we look at CoreWeave, there is little question about the demand profile for AI and data centers. It's another indirect beneficiary and benefit point, if you will, for our shares of NVIDIA. But at the same time, just getting back to this pickup in the potential IPO market, we are seeing a pickup in M&A activity as well. And we know this tends to be like a game of musical chairs.

So as we start to see the pickup of M&A activity, we're likely to see more in the near term. But I will also share that as we watch President Trump's big, beautiful bill move from the house to the Senate, one of the things, in addition to what we might see unfold on tax reform, is deregulation because that has the potential to throw another log of wood-- maybe two, maybe three-- onto the M&A market activity. So we're going to continue to watch that as well. And as that overall activity picks up, if we need to adjust our price targets for Morgan Stanley, Bank of America, you know that we will.

Now, I wanted to talk about one other thing. Earlier this week, I'm sure you folks noticed we made some arguably well-timed moves to lock in some gains on several holdings. That helped pick up the portfolio's cash position. And as we talked about, we are starting to look for fresh meat, both for the bullpen but also for the portfolio.

Do I think that we might have something before too long? I do. I do. But if you didn't read Helene Meisler's comments from last night, then shame on if you didn't because you should. And I'm not saying that because I do.

But I just think you'll find them extremely helpful and informative. So what did Helene say last night? The market is intermediate term overbought. Add to that, if you read through all of our alerts, we do see some incremental headwinds ahead.

One, we're not really convinced that the passage of the Trump bill will be a catalyst for the market to move higher. We've also seen signs that inflation is picking up, at least in the initial May data. And we'll look for confirmation when we get into early June when we triangulate around the ISM data and some other data points as well. That pick up inflation kind of reconfirms to us that any Fed rate cuts are going to be towards the very end of the year. Remember, the market still sees three.

We also continue to be concerned about second half EPS expectations for the S&P 500 and what that could mean for the market. So all in all, you take all those things together. And it just says that we are going to tread carefully in the near term near-term, certainly as we head into the Memorial weekend. So flipping it around, what that means is for us to make any buys for the portfolio-- new position, existing position-- we're going to have to have something that's extremely compelling. And we're going to have to have extremely high conviction to do so.

I would also share that if we do anything near term-- maybe tomorrow, early next week-- likely it's going to be something on the smaller size. We're not going to go in and take down a big position when the market is intermediate overbought. It was just not going to do that. It wouldn't be prudent.

So with that, I would say stay tuned. Continue to look at your alerts. And if we make any trades with the portfolio, you know it. We will want you right there with us.

So, stay tuned folks. Might be a holiday weekend coming up. But before we get there, we're going to have a lot more coming your way. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long COST.