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Between Costco and Home Depot, Which Is the Top Retail Stock to Buy Right Now?

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Costco (NASDAQ: COST) and Home Depot (NYSE: HD) are two of the biggest retailers in the world. One focuses on general merchandise, while the other caters to DIY and professional customers with home improvement products. The combined market cap of these two companies is a staggering $770 billion as of April 21.

Costco and Home Depot have been wildly successful investments in the past three decades. But between these dominant businesses, which one is the top retail stock to add to your portfolio right now?

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Not worried about a recession

Investors are becoming more worried that an economic downturn is on the horizon. This probably isn't too much of a concern for Costco and its management team. The business continues to thrive regardless of external forces.

During the fiscal 2025 second quarter (ended Feb. 16), same-store sales (SSS) were up 6.8% year over year. This was driven mostly by a meaningful gain in foot traffic, an encouraging sign. Home furnishings, gold and jewelry, and appliances, among other items, registered strong growth.

In a potential recessionary period, Costco should be able to hold up better than its rivals. Its focus on low prices on quality goods makes it a favorite choice among consumers, especially when it comes to everyday essentials.

A successful membership-based model keeps these shoppers loyal, while also providing the business with a high-margin and recurring revenue stream. Costco's membership base now sits at 78.4 million households, supporting $1.2 billion in membership fee income.

Costco's ability to generate consistent profits is a feature of the durable demand it experiences. In addition to a regular dividend, the leadership team shares these earnings with investors in the form of special one-time payouts. The last one was for $15 per share in January 2024. A favorable capital allocation practice like this can boost returns for investors.

Thinking about the bigger picture

Home Depot raked in $159.5 billion in revenue in fiscal 2024 (ended Feb. 2), putting it significantly ahead of Lowe's in the home improvement industry. Its massive scale allows for sizable investments in supply chain and omnichannel capabilities, ensuring adequate inventory for customers. Home Depot's brand name undoubtedly carries weight, too.

Despite its competitive strengths, the business has been struggling recently. On the fourth-quarter 2024 earnings call, CEO Ted Decker said he and his team are focused on strategic priorities "despite uncertain macroeconomic conditions in a higher interest rate environment that impacted home improvement demand."