Jim:      We may have come out of our garden variety depression… and today’s action might make us feel like the recession can’t last much longer… but you have to remember that this is mutual fund Monday, in addition to being the first day of the month… a double whammy of impatient money flooding from the sidelines into stocks… what BJ’s and Costco give us are companies that benefit from the recession… since it encourages more and more consumers to buy their necessities at a discount and in bulk… but at the same time, they are not really defensive stocks… like the makers of all the basic consumer staples that they sell in quantity at their warehouse stores… that means that BJ’s and Costco also can win when the economy starts to recover… as all of the new shoppers who bought club memberships at either wholesaler during the downturn… will continue to shop there… only they will spend more money, and it will go to purchasing their more expensive products… like jewelry, and electronics… although, credit where it is due… BJ‘s is already doing brisk business selling computer equipment and television sets… Costco has got that too, but BJ’s excels at it.

This thing is right, but I think that it is a cop out to say that you can own both of these two… you have got to pick ‘em… you have got to pick one… Costco or BJ’s… and I am going to help show you how you do it… at the end of the day, a lot of the business in picking stocks simply comes down to being able to compare two companies in the same industry.. and understand why one is better than the other… once you know what company is better you can make a meaningful judgment about which stock is the better buy… despite what you may have heard, I am not just hear to do my Soupy Sales impression… and also be a menace to investors… mainly I come out here every night to teach you how to be a better investor… by sharing everything that I have learned about the market in the 30 years that I have spent in the stock trenches… that is why I am using Costco and BJ’s as an example to teach you how to judge stocks like a professional… you have probably been to one or the other… this helps you understand the way that you think about stocks.

Where do we start… with two companies as similar as Costco and BJ’s you can get right down to business comparing them based on the key metrics… a very important term… the key metrics for their particular industry… the most important measure of success… the numbers that give you the most insight into the relevant strength of each company… before we do that… I think that it is crucial to go over their major differences… which can tell us a lot about which company we would rather own… given how alike the two really are in most respects frankly.

The biggest difference between Costco and BJ’s is one that you might not think of because you are BJ’s or you are Costco… and that is geography… see BJ’s is primarily an east coast operation, 19% of its 181 stores in New York, 15% in Florida, 11% each in Massachusetts and New Jersey… Costco is on the other hand is much more of a west coast chain… with 28% of its 403 stores in California, and its second largest concentration in Washington where 7% of its stores are located… Costco’s concentration in California sure has not been good for business… given that it is one of the hardest hit states in the country when it comes to the slowdown and high unemployment… now look, that could turn into a positive if there is a big turn in California… but while I believe in the states housing market, it’s economy will clearly be weighed down by high unemployment… and a real bad tax situation going there.

The worst geographic concentration for BJ’s, 15% of its stores in Florida… another major victim of the housing collapse and the recession… that is considerably smaller than Costco’s concentration in California… and BJ’s also has all of those store in New York, Massachusetts, and my home state of New Jersey… where the recession, as bad as it may seem, simply is not as worse as other areas… still what matters most with retail is how much room a company has to expand geographically…. and I have to tell you that BJ’s has so much more room to put up more stores than Costco does… that this fact all by itself, makes me like it so much more… retail stocks seem to run out of appreciation when the underlying companies run out of room to expand… you can check this out over and over again, from the biggest to the smallest… once they are in all 50 states, not a lot of room to grow… it is just that simple.

Here is some good news for BJ’s holders… if BJ’s doubled the number of stores that it has, it would still be smaller than Costco… years and years of future growth that cannot be ignored… that is why, in terms of the major facts, I like BJ’s… plus BJ’s, right now has much better execution… this is painful, because Costco has always had it before this… do you know that BJ’s has not missed the streets expectations once over the last 4 quarters… while Costco has gone just 2 for 4... great in baseball… crummy in this game… with earnings falling 7% shy of the streets consensus estimates… when it reported just last Thursday… although, it only missed by a penny when you factor out its litigation costs.

How about those key margins… comps, as in comparable store sales, also known as same store sales… are king in retail… excluding fuel BJ’s comps grew at a really respectable 7.5% clip… excluding fuel this past quarter… up from 6.4% the previous quarter… uh, Costco… which used to have comps as 6% three quarters ago… reported 0% growth, which really isn’t growth at all this past quarter… oh it certainly the company is a better operator than BJ’s long term… but it is gradually seeming to lose its edge, is that painful to say… and BJ’s has been improving itself… part of its success stems from the new merchandising strategy that it adopted two years ago… which increased the number of different items that is available at each of its locations… giving its member 75% more items to chose from than the average wholesale club does… that was smart.

BJ’s is the better company right now, hands down… but which is the better stock… and they are two different things… okay, let’s look at that… BJ’s trades at 13 times next years earnings estimates… um, cheap… but get this… Costco, for all of its faults, trades at 18 times next years numbers… given how much better BJ’s is positioned at the moment, how much growth it has ahead of it, and all it has been doing to improve itself… not to mention, Costco’s seeming inability to consistently deliver decent quarterly results… as much as I like to shop there… I think the disparity is too great… right here, BJ’s is still closer to its 52 week low than its 52 week high… I think the stock has much further to go.

The bottom line…