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Two Ways To Play: Costco's Inflation Sense Of Self


Strengthen your portfolio in good times and bad.


Costco Cuts Guidance

The Wall Street Journal reports Costco (COST) cut its guidance for the fourth quarter due to inflation pressures, particularly energy costs. The company said it will take a greater-than-anticipated LIFO charge, or inventory costs, and profitability will be lower at its gasoline operations.

Costco said earnings per share are expected to be below $1.00 First Call consensus estimates. The company also announced that its Board of Directors has declared a quarterly cash dividend of $0.16 per share, or $0.64 per share annually.

From the Bull Pen: Is the inflation story much of a surprise? Those that remain bullish see this as a gift and can fade (read: buy) the weakness into the $60 level. Sell-stops can be set below.

From the Bear Cave: Retail bears can look elsewhere. A downside play might exist in Target (TGT) should the stock rally to the $50 mark. If and when.

Banks Soar

The Wall Street Journal reports five of the nation's largest banks have posted quarterly losses of over $11 bln but their shares have rallied on average 14% fueled in part by hopes that the banks have bottomed and short-sellers covering their bets. But some are skeptical even with institutions like Wachovia (WB) insisting that they can weather the current crisis independently and without further equity capital raises. WB, which reported a net loss of $8.67 bln, set aside $5.6 bln for nonperforming loans. Elsewhere Washington Mutual (WM) reported a loss of $3.33 bln, and said it was also increasing its loan-loss provision. For more, see Professor Andrew Jeffery's column Wachovia Bleeding Cash.

From the Bull Pen: Bulls can look to Charles Schwab (SCHW) for a play. A pullback into the $21-$20 range could be a place for an entry.

From the Bear Cave: The Ultrashort Financials (SKF) may be an option for financial bears. This stock corresponds to twice the inverse of the DJ financials index. Near $100 could be a place of entry.

For more ideas in real time throughout the trading day, check out Minyanville's Buzz & Banter.

Quick Check Around the World

Asian trading closed with the Hang Seng +2.69%, Nikkei +0.97%, Taiwan +3.46%, Sensex +5.94% and Shanghai -0.29%.

A quick check of Europe finds the CAC +1.64%, DAX +1.22%, FTSE +1.07%

As of 8:30 AM EST, S&P futures are higher +7.5 points to 1281, and Nasdaq futures are up +11 points to 1835.

A Look At Commodities

Commodities are lower. Crude oil is down -2.01 to 126.41. Gold is lower -11.40 to 937.20. Silver is lower -0.330 to 17.615, and copper is off -3.05 to 370.50.

The dollar index is up +0.126 to 72.573.

On the Radar


MBA Mortgage Applications: -6.2% vs. 1.7% prior

10:30 Crude Inventories: 2952k prior
14:00 Fed's Beige Book

Click here for the full trading radar.

Good luck today!

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No positions in stocks mentioned.

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