Key Points

  • Costco's value pricing continues to attract and retain members.

  • The company has perfected a different business model.

  • 10 stocks we like better than Costco Wholesale ›

Investors often face choices. Sometimes, it comes down to two good stocks. In that case, you have to pick which one you think will do better.

Macy's (NYSE: M) has been successfully executing its turnaround plan, including focusing on selling luxury items. Its same-store sales (comps) have been growing across its brands, and the shares have rewarded investors. The retailer's stock price gained 15.2% this year through Aug. 10, besting the S&P 500 index's 13.3% appreciation.

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However, while that's certainly good news for those who purchased Macy's stock, I prefer Costco Wholesale (NASDAQ: COST) as a long-term investment.

Paying to join the club

Costco has a different business model from most retailers. That's because it charges people an annual fee to become members and shop at its warehouses.

With its high-quality goods and low unit prices (including supersized items), it consistently grows and retains members. It's not easy to build and keep customers, but it's the key to Costco's success. With the company's value proposition, there's no reason to think people will suddenly drop their memberships.

Renewal rates continue to hover around 90%, including in the fiscal third quarter, which ended on May 10. Costco had 82.9 million paid members, an increase from 82.1 million on Feb. 15.

Members aren't just joining and staying away. Costco continues to produce consistently higher comps, including a 6.6% increase for the quarter, excluding gasoline sales and foreign-currency translation effects. The company keeps growing profitability, too. Third-quarter operating income rose more than 11% year over year to $2.8 billion.

Expansion opportunities

Costco isn't a mature retailer with few growth opportunities, either. It continues to expand the number of warehouses.

Historically, the company has launched at least 20 new warehouses per year. Management projects another 13 locations when the fiscal year ends at the end of this month. That's on top of the 16 new warehouses opened during the first nine months of the year.

Costco had 931 warehouses as of May 10, including 639 located in the U.S., 115 in Canada, and 43 in Mexico. That leaves plenty of room for more warehouse growth, particularly outside of North America.

It's no wonder that Costco's stock has done well over the years. The shares have gained 466.3% over the last 10 years, through Aug. 10. That trounces the S&P 500's 255.4% appreciation.

With a simple business that management executes at a high level, an enviably loyal customer base, and growth opportunities, Costco's stock should continue to reward investors over the next decade.

Should you buy stock in Costco Wholesale right now?

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Lawrence Rothman, CFA has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.