These Analysts Have a New Stock Acronym for You. It’s ‘COW’

The temptation to plug acronyms in this business—whether you’re an investor, analyst or someone who writes about such things—is powerful. 

How powerful? Sufficiently so that just after we all learned what the “TACO Trade” was, some would have us already moving on to the next multi-letter term. (Meanwhile, some of us are old enough to remember when there was only one “A” in “FANG,” rather than however many there are now.)  

If you’re sure you won’t chicken out, UBS suggests you have a “COW”—short for “Costco (COST), O’Reilly (ORLY) and Walmart (WMT),” referring to shares of the warehouse standout, the auto parts chain, and the retail giant, respectively. That’s its term, to be clear, not ours: Its research note title asks whether it’s “Best to Own the COW.”  

“We think it makes sense to stick with these retail stocks for the foreseeable future,” the analysts wrote Tuesday. “This is because we believe Costco, O’Reilly, and Walmart will lead to steady outperformance over the long-term.”

Their argument boils down to this: That “best-in-class” retailers can provide investors some safety in uncertain times; these companies can benefit from “periods of disruption,” taking share and growing sustainable sales; the businesses have invested in personnel, supply chains and e-commerce; and they have strong moats around their businesses. 

“We see the biggest risk to the performance of these stocks being a significant reduction in interest rates,” they wrote. “In this case, the market might shift  some capital to laggards or the stocks of retailers that might stand to outperform during a period of more robust economic activity.”

UBS has “buy” ratings on all three companies’ shares.  “At  the  end  of  the  day,  we  believe  [the companies]  offer  steady,  solid  performance  regardless  of  the  surrounding  and  are  poised  to  continue  to  grow  and  outperform the broader industry in the long term,” its analysts wrote.