Tight food margins and high unemployment...so why do I like Costco and Paychex?
I have not done my DD yet, because I would like to know if my theories make any sense before I spend hours on these companies, so any input is appreciated.
Paychex: unemployment high, fed funds rate low. Those are two bad things for Paychex. Yet, their earnings are growing and they have a healthy dividend which is better than the SPY's. If they can have a better than average dividend combined with earnings growth in this bad environment, then I think this is a good stock to buy now and sell when unemployment is low and fed funds rate is high. They are also best of breed...by far highest margins in their industry. What do you think?
Costco: Inflation (specifically food) and the growing population should hurt retail food sellers. This leads me to believe that Costco will crush its competitors. Why? When food prices start to rise, people will want to go to the cheaper food places, so this puts Costco already at an advantage to whole foods, super fresh and the like. But then why Costco? You need a membership to get to Costco. This means 1) more brand loyalty 2) people will (this is from basic logic and some knowledge of psychology) think "well I already paid the membership, it would be a waste not to keep going" (I know what a sunk cost is but most people don't). People are always going to need food so its not a good they can ditch. And buying in bulk might make sense if you expect prices to keep rising. Employees of Costco love working there, and the CEO takes a paycheck of $300,000 a year which is very low for a CEO of a big company. If the industry gets chaotic, the employees will not freak out as much as in other retailers because they are loyal workers. Also, the CEO is not lavish so it seems that he will do what he can to remain competitive, and not be focused on himself, so he will cut the costs he must. Plus, Costco is seen as socially responsible, and people are liking that more and more. I realize you don't want to own a stock like Costco in a bull market, but this could be the exception.
Are either one worth a further look, or is my initial analysis wrong in some way?