The Best Stock to Buy Right Now: Costco vs. Walmart

Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Once again, we’re pitting two stocks from Morningstar’s Best Companies to Own list against each other. Our Best Companies to Own list features firms with significant business advantages that should allow them to remain competitive for decades. To make the list, companies must also have predictable cash flows and be run by managers who have a history of making smart capital-allocation decisions.

This week, two retail giants in the consumer defensive sector, Costco COST and Walmart WMT, go head-to-head for the title of the best stock to invest in today. Let’s review them one by one.

Is Costco the Best Stock to Buy Right Now?

Retail is a cutthroat industry, yet Morningstar thinks Costco has a unique edge thanks to its loyal membership base, effective cost management, and impressive scale. The retailer’s consumer base was made up of 76 million paid members at the end of fiscal 2024, and these members renewed at an impressive 90% rate globally. Sticky membership helps drive consistent transaction volume at Costco’s warehouses. Costco’s membership fee revenue has grown by more than 7% on average during the past decade and allows the retailer to profitably operate on low product margins. Costco has carved out a wide economic moat, stemming from two moat sources, which are cost advantage and intangible assets. We think Costco stock is worth $620.

Review Morningstar’s full report on Costco.

Is Walmart the Best Stock to Invest In Today?

Walmart’s strength lies in large part in its physical store base. Its 4,600 US stores are located within 10 miles of 90% of the population. With its massive scale and a brand that’s synonymous with low prices, Walmart has carved out a wide economic moat. The retailer has developed omnichannel ordering and fulfillment solutions for its customers while also developing a Walmart+ subscription service. Adoption is growing, and we view Walmart as one of the few US companies with enough scale to successfully develop such a platform with sizable customer engagement. We think Walmart stock is worth $64.

Review Morningstar’s full report on Walmart.

So, which is the best stock to buy today, Costco or Walmart? The shares of both retailers look significantly overvalued today, as they’re trading well above Morningstar’s fair value estimates. We don’t think either stock is attractive today. But investors looking for undervalued stocks in the consumer defensive sector will find better opportunities in the packaged foods industry with stocks like Campbell’s CPB and General Mills GIS trading well below our fair value estimates.

For more stock insights, tune into The Morning Filter podcast each week. And of course, visit Morningstar.com.

Morningstar director Erin Lash provided the research behind this segment.

Watch 3 High-Conviction Stock Picks From a Legendary Fund Manager for more from Susan Dziubinski.