Key Points
Costco has a resilient business, and sales are growing by double digits.
Palantir has record total contract value, which is committed, long-term revenue.
The S&P 500 is back to hitting new highs as it rebounds from an earlier plunge thanks to the Iran war. But valuations have been high for a while, and with many stocks recovering along with the market, it's hard to spot bargains. Consider the S&P 500 cyclically adjusted P/E (CAPE) ratio, which just reached a 10-year high.
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Costco Wholesale(NASDAQ: COST) and Palantir Technologies(NASDAQ: PLTR) are two amazing stocks that look too expensive to buy today. But if they drop again, I'm ready to buy them. Here's why.
Image source: The Motley Fool.
1. Costco
Costco stock has been incredibly reliable as a market-beater over its decades on the market, so much so that it's become highly in demand and quite expensive. It trades at a P/E ratio of 52, which is more expensive than stocks like Nvidia and Amazon, even though it's a humble retail stock. On the one hand, that's a rich valuation for a company past its high-growth days. On the other hand, it signals how much value the market places on its reliability and consistency.
It's one of few public companies that report monthly updates, and in the March report, sales increased 11.3% year over year, with a 9.4% increase in comparable sales (comps). Those are accelerated numbers, and the month included one fewer shopping day than last year, which management said negatively impacted both numbers.
It's hard to improve on Costco's well-run system of charging a membership fee and delivering rock-bottom prices. The fee generates loyalty and volume, and the low prices create resilience and higher sales. It onboards new members consistently, and members renew at a high rate.
However, the company hasn't been bogged down by its traditional systems. There are very high barriers to entry in its space, even for tech disruptors. Costco itself has been figuring out how to bring more tech into operations, since the way it works doesn't lend itself well to classic e-commerce. Some of what it has landed on are partnerships with same-day delivery companies for grocery and curbside pickup for large and bulky items, and that's why it has changed its e-commerce sales to what it calls "digitally enabled sales," which increased 23% year over year in March.
Costco is an excellent forever stock, and with a better entry point, I'd want to buy in.
2. Palantir
Palantir has an exceptional artificial intelligence-based data analysis platform that helps governments and companies organize disparate data sets and provides insights to help them make decisions. It offers a number of products that cull information at different levels, and it's attracting new business at a rapid pace.
It has been one of the most high-profile AI stocks since AI took the markets by storm about three years ago. It's up nearly 1,600% since then, crushing the market.
Palantir is growing quickly and reliably, and it has long-term contracts that bring in committed revenue. In the 2025 fourth quarter, revenue increased 70% year over year. Its biggest growth driver was U.S. commercial growth, which was up 137%. It completed 180 deals worth $1 million or more, and it ended the quarter with a record $4.3 billion in total contract value. Operating margin was 57%, and free cash flow margin was 56%.
It's easy to see why the market is enamored of this stock. These numbers indicate high efficiency and imply long-term opportunity, and the AI angle makes it stand out. "Palantir is alone in choosing to exclusively focus on scaling the operational leverage made possible by the rapid advancements of AI models," CEO Alex Karp said, "a trend that we first called 'commodity cognition' well before others started repeating it."
However, is the stock worth 231 times trailing 12-month earnings? The market apparently thinks it is, but that's a high premium to live up to, which might be why the stock hasn't rebounded with the market. It's still priced too high for my personal preferences, but if the stock falls significantly after earnings on May 4 or another time, or if the market has a large drop, Palantir is on my buy list.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
