PreMarket Prep Stock Of The Day: Costco

Benzinga's PreMarket Prep airs every morning from 8-9:00 a.m. ET. During that fast-paced highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Stock Of The Day: Costco

As volatility reigns supreme this week with wicked rallies and declines, some issues tend to be holding up better than others. One of those is Costco Wholesale Corporation COST.

As citizens prepare for the potential short- and long-term impact from the coronavirus outbreak, photos revealed packed stores and some with empty shelves as many customers are purchasing essential supplies to survive if unable to leave their home for a long period of time.

Whether it is humans or algorithms digesting the news and relentlessly purchasing shares, the end result is the same: a much higher stock price. The reason being the expectation of better-than-expected third-quarter earnings results. It should be noted the company announces second-quarter results on March 5, which will not reflect the current onslaught of purchases.

Incredible Rally

As a result of the buying frenzy, Costco posted perhaps it biggest up day, point and percentage wise, in the history of the issue. After ending Friday's session at the depressed price of $281.14, it opened much higher. After a brief retreat, it rallied to $309.51 and ended the session at $309.14. The rally continued in Tuesday's broad based rally so far, reaching $314.17.

Factors To Consider

Costco has been in a strong uptrend for years, primarily due to strong earnings that are the result of subscription-based model to its stores. Also, the company is expanding into other countries, such as China, which may keep the earnings momentum going and result in an even higher share price.

If the coronavirus becomes an pandemic in the U.S., citizens may not to want to leave their in homes, in fear of contracting the virus. As a result, they may not be going to Costco or anywhere else for that matter, to purchase the normal allotment of goods. In turn, the brief increase of sales may be offset by a long period of a decline.

Photo credit: Tony Webster, via Wikimedia Commons