Costco upgraded by Oppenheimer, which says recent underperformance is a buying opportunity

Boxes of shoes are stacked high for shoppers at a Costco store in Alhambra, California, on August 19, 2019.
Frederic J. Brown | AFP | Getty Images

Costco's recent underperformance is a good entry point into the stock, according to Oppenheimer.

The firm upgraded shares of Costco to outperform from perform and made the retailer a top pick. Oppenheimer also raised its price target on Costco to $335 per share from $300.

"We see the potential for a catch-up trade as investors could eventually rotate into laggards," Oppenheimer analyst Rupesh Parikh said in a note to clients Tuesday.

Shares of Costco have gained about 4% since the end of August, while the S&P 500 has rallied about 16% in the same period. Costco's relative price-to-earnings ratio, which compares current P/E ratio to past P/E ratios, has come down to 1.8x from a peak level of 2.07x in late August of 2019. Oppenheimer said Costco's more attractive valuation is a buying opportunity.