The retail industry has undergone a remarkable transformation over the past two decades. The U.S. market, initially valued at $3 trillion in 2000, has more than doubled, exceeding $7 trillion in 2022. The meteoric rise of online shopping and digital transactions has not only expanded the industry but also provided companies with new channels to bolster their earnings.
Apple and Costco Wholesale have emerged as monumental players, each operating in distinct spheres of retail. Despite their differing focuses—Apple in consumer electronics and Costco in wholesale grocery—they have both achieved triple-digit stock growth over the last five years and cultivated immense consumer loyalty.
The Apple Advantage
Although Apple offers a relatively smaller product range compared to most retailers, Statista ranks it 11th among the top 100 leading U.S. retailers. Apple’s unparalleled popularity with devices like the iPhone, MacBook, AirPods, and iPad, along with its seamless design language and integrated ecosystem, drives unwavering customer allegiance.
In fiscal 2023, Apple experienced a 3% dip in revenue year over year, attributed to macroeconomic downturns impacting consumer spending. However, recent data indicates signs of a recovery in the tech market. Smartphone shipments saw a 4% increase in the fourth quarter of 2023 after nearly two years of decline, while PC shipments returned to growth, rising 0.3%. Although these market improvements have not yet manifested in Apple’s earnings, they signal promising trends for 2024.
Despite market challenges, Apple generated nearly $100 billion in free cash flow in the previous year. Coupled with a thriving digital services division and forays into artificial intelligence, Apple appears poised for long-term success, boasting exceptional brand power and robust cash reserves to stage a vigorous resurgence and flourish in the upcoming decade.
The Dominance of Costco
Costco secures the third spot among the 100 largest U.S. retailers. Over the past five years, the company has delivered significantly more stock growth compared to many of its formidable American counterparts.
Attracting consumers globally with its unique model of an annual subscription fee for access to wholesale prices, Costco emphasizes the subscription-based facet of its business model over product sales, which translates into substantial profits. In fiscal 2023, Costco surpassed $6 billion in profits, with membership fees contributing to 73% of this amount. With a staggering 90% subscription renewal rate, the company stands as a retail powerhouse.
Not only has Costco consistently thrilled investors with robust growth but it has also surprised them with substantial special dividends—the most recent being $15 per share distributed on Jan. 12, following a $10-per-share special dividend in 2020. This winning business model, combined with investor satisfaction, positions Costco stock as an enticing investment opportunity in the retail sector.
Choosing the Champion for 2024
Both Apple and Costco reign supreme in their respective domains, reaping the rewards of fiercely loyal customer bases. However, leading an industry does not automatically translate into trading at the right price. Data suggests that Apple’s stock currently offers significantly more value than Costco’s.
An analysis of Apple and Costco’s price-to-earnings (P/E) ratios and price-to-free cash flows (P/FCF) demonstrates that Apple’s lower figures indicate the more attractively priced stock. These metrics, which gauge a company’s financial health, favor Apple, fortified by an ameliorating tech market and expansions into high-potential sectors like AI, positioning the company as the superior stock choice for 2024.
So, is Apple or Costco the better stock to buy in 2024? The evidence points to Apple as the more compelling investment, one with the potential to deliver significant value to investors.
