A relatively weak Q1 earnings season once again has traders worried about a market downfall, yet so far, the S&P 500 has been fairly resilient. In uncertain times like these, pair trades offer the potential for upside with protection to the downside in the event of a market selloff.
RBC Capital analyst Scot Ciccarelli may have identified the perfect pair trade in the retail sector. According to Ciccarelli, traders should be buying Costco Wholesale Corporation COST 0.07% and selling Wal-Mart Stores, Inc. WMT 0.28%.
Ciccarelli believes that Costco’s unique low-margin business model helps protect it from e-commerce competition, a characteristic that deserves a premium valuation in the market.
“Costco’s membership model provides it with a growing, high-margin revenue stream, while the extreme values it provides to members and treasure-hunt design has led to some of the best/most consistent customer traffic growth in all of Retail,” Ciccarelli explained.
When it comes to Wal-Mart, however, he sees…
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