Proud to Own Series
Each Wednesday, we highlight a core portfolio holding within our Faith-Based 100 Index, and show why it is a part of our “Proud to Own” universe.
As a reminder, for the company to be included in our “proud to own” universe, it must meet three criteria:
1. It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.
2. It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…
3. It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.
This Week’s Highlighted Company
This week our selection is Costco Wholesale (NASDAQ: COST). Costco Wholesale Corp. operates membership warehouses based on the concept that offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. This rapid inventory turnover enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.
Employees are a company’s best asset
We look for companies that treat their employees with respect and dignity. Companies that find themselveson the worst place to work lists don’t make it into our portfolios. Instead we look for companies that can boast being one of the best places to work.
As we see in the God’s Word: ““So I will come to put you on trial. I will be quick to testify against sorcerers, adulterers and perjurers, against those who defraud laborers of their wages . . .” says the Lord Almighty. (Malachi 3:5)
God sees it is important to treat workers fair and just. Costco is one of those types of companies.
Walmart is the largest U.S. retailer while Costco is second-largest. Both compete head on selling a wide variety of low-priced items such as food, home goods, apparel, and toys to budget conscious customers. However, they have much different business strategies, especially when it comes to employee compensation. Costco pays its employees much better than Wal-mart. Here are a few examples:
- Not too long ago, a BusinessWeek article reported that the average full-time U.S. workers earned an average of $12.67 an hour working at Wal-Mart. However, Walmart aggressively controls its labor costs by hiring a large percentage of part-time workers. After factoring in full and part time workers, IBIS World, an independent market research group, concluded that the average hourly wage of a Walmart sales associate is just $8.81.
- Costco, on the other hand, pays its hourly workers approximately $21.00 an hour, not including overtime, and not including the typical $5,000 annual bonus received by employees who have been with the company for five years or longer.
- Wal-Mart estimates that “more than half” of its employees receive health care benefits. However many of its part-time workers receive little to no benefits.
- The Costco benefit package includes health, vision, dental, and 401(k) programs for both full- and part-time workers. 88% of employees are eligible. Full-time new hires must wait 90 days before becoming eligible while part-time workers must wait 180 days. 98% of eligible employees are enrolled in the plan and employees pay less than 10% of the overall cost of their health plan.
- Back when the economy is heading in a recession in 2008-9, while other retailers were slashing jobs and benefits, Costco stepped up big time. Even though Costco saw declines in same-store sales in 2009, it chose to help its employees. While the economy was bad, it figured out how to give its employees more and not less. Costco approved a $1.50 an hour increase for hourly employees spread out over three years, which was unheard of during a recession!
- It also belives in hiring from within. More than 70 percent of its warehouse managers began their careers working the register or on the floor.
For a good comparison of Wal-Mart vs. Costco, seeing the numbers, here’s how they really compare.
Has investing in its employees been profitable for Costco? Here’s one chart that will answer that question:
Since 2009, COST is up nearly 400%!
Bottom Line: Though Costco Wholesale (NASDAQ: COST) is far from perfect, it is a company worth considering for your portfolio. It treats its employees and customers with dignity and respect. Its actions of paying its employees a “living wage” speaks louder than words. It focuses on keeping prices low, volumes high, and employees happy. Costco is a company you can be “proud to own”.
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