Here's Why Patient Capital Opportunity Equity Strategy Purchased Costco Wholesale Corporation (COST) Puts in Q2

Patient Capital Management, a value investing firm, released its “Patient Capital Opportunity Equity Strategy” second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The strategy generated a total return of 15.3% net of fees in the quarter compared to the strategy’s unmanaged benchmark, the S&P 500 Index’s 10.9% return. According to a three-factor performance attribution model, the selection effect contributed positively to the portfolio’s performance, which was partially offset by allocation and interaction effects. In addition, you can check the fund’s top 5 holdings to know its best picks in 2025.

In its second quarter 2025 investor letter, Patient Capital Opportunity Equity Strategy highlighted stocks such as Costco Wholesale Corporation (NASDAQ:COST). Costco Wholesale Corporation (NASDAQ:COST) operates membership-based warehouses that offer a range of merchandise categories. The one-month return of Costco Wholesale Corporation (NASDAQ:COST) was -2.69%, and its shares gained 13.81% of their value over the last 52 weeks. On July 17, 2025, Costco Wholesale Corporation (NASDAQ:COST) stock closed at $953.91 per share with a market capitalization of $423.037 billion.

Patient Capital Opportunity Equity Strategy stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its second quarter 2025 investor letter:

"We initiated an options position in Costco Wholesale Corporation (NASDAQ:COST) (COST 1/16/26 P960) during the quarter, purchasing at-the-money puts with a 2026 expiration. We’ve consistently highlighted the risk lurking in the “overpriced compounder” segment of the market, and we view Costco as a prime example. The stock is currently trading at 54x earnings despite growing only at a mid-single-digit rate. While Costco is undoubtedly a well-run business, we believe paying more than twice the market multiple for a low-growth, low-margin retailer is difficult to justify. At some point, we expect the market to reassess the premium valuation being placed on Costco's fundamentals. When it does, we believe the stock could face meaningful downside from its current all-time high multiple."

Costco Wholesale Corporation (NASDAQ:COST) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 93 hedge fund portfolios held Costco Wholesale Corporation (NASDAQ:COST) at the end of the first quarter, which was 96 in the previous quarter. While we acknowledge the potential of COST as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Costco Wholesale Corporation (NASDAQ:COST) and shared the list of stocks that Jim Cramer recently discussed. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.