There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

August 10, 2009 - Costco Wholesale Corp. (COST-NASDAQ) operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities.

It offers Business and Gold Star (individual) memberships. As of May 2009, Costco operated a chain of 551 warehouses comprising 407 in 40 states and Puerto Rico, 76 in Canada, 21 in the United Kingdom, 6 in Korea, 5 in Taiwan, and 8 in Japan, as well as 31warehouses in Mexico through a 50%-owned joint venture. It also offers products through Web sites costco.com in the U.S. and costco.ca in Canada. The company, formerly known as Costco Companies, Inc., was founded in 1976 and is based in Issaquah, Washington. The current Costco came about through the merger of Price Co. and Costco Wholesale in 1993.

While there has been an increase in foot traffic at Costco, the buying pattern of shoppers has changed. Domestic comparables for same store sales was down 6% in the month of June (only 1% when lower gas prices are removed). Food items did better than non-food items in the month. Internationally, sales were off 3% and were up 8% when currency deflation is removed. International sales are about 20% of the total. The average amount per transaction was down 10.5%, but traffic increased by 4.5%. Where sales have shown most decline is in the larger, discretionary items, ones like flat screen tv's or computers or tables and chairs. Food continues to do well but may see margins compress as food prices go lower.

On the bright side are the members. They love Costco and renew at a rate unlike most other clubs. In the latest quarter (ended in May), the renewal rate was 87.4%. These fees are extremely important to the bottom line of Costco since they're almost completely profit. That's part of the reason the goods are priced so low. The company can afford to pass along savings as long as memberships stay strong.

Sales for the last 5 years had average annual increases of 12% while earnings improved annually at a rate of 12.5%. For the next 5 years, analysts see revenues up at an average annual rate of 7% and the bottom line growing by 11.5%. Earnings for this year are projected to be $2.46 (the consensus from 22 analysts), well below the $2.91 of last year. For 2010, the number is $2.69. Quarterly results will be announced on October 8 with the estimate at 75 cents a share, down from 92 cents in the same quarter last year. The November quarter (first fiscal quarter) is projected to be 60 cents a share, below the 65 cents in the first period of last year.

More numbers: Trailing P/E is 19.55 while the Forward P/E is 18.31. Price to sales is .3. Price to Book is 2.25. Operating margin for the last 12 months was 2.53% while the Profit margin was 1.54%. Return on Equity for the last 12 months was 11.94%. Total cash is $3.67 billion. Total debt is 2.24 billion. Current ratio is 1.09. Book value per share is $22.22. There is an annual dividend of 72 cents a share. Value Line gives the company an A for financial strength.

What appeals about Costco is its value proposition as well as all the cash in the bank. Consumers will continue to flock to Costco for great prices on food and most any other product. But until the economy turns, food will continue to dominate sales. Food prices could continue downward and compress margins in the short term. When consumers feel better, they'll go beyond food, though, looking for bargains on everything from jewelry to patio furniture. Costco will be glad to help.

- Company Web site: www.costco.com

Ted Allrich