BUY OR SELL-Is Costco stock dip a chance to buy?

(For more Reuters BUY OR SELL stories, click [BUYSELL/])

* Costco stock has fallen 35 pct since September

* Bears wary of consumers shunning big-ticket items

* Bulls see a quality brand with good track record

By Nicole Maestri and Doris Frankel

SAN FRANCISCO/CHICAGO, June 24 (Reuters) - Costco Wholesale
Corp (COST.O) shares were a Wall Street favorite in the early
months of the recession as investors bet shoppers would seek
its low prices on basics like food to offset the downturn.

But since September, when the failure of Lehman Brothers
set off a global financial crisis, its stock has fallen 35
percent while the S&P Retail Index .RLX is down 24 percent.

Investors have fretted that consumers are shunning
purchases of its big-ticket items, like TVs and jewelry. Costco
also operates gas stations at many of its clubs, but falling
gas prices have deflated its sales in recent months.

Its shares are now down 7 percent since early June when it
reported a 7 percent drop in May same-store sales, hurt by gas
deflation and unfavorable foreign exchange rates.

With the stock trading around $45, down from a 52-week high
of $74.89 touched last July, is it time to sell? Or does the
recent decline signal a buying opportunity for investors who
want to own shares in the top U.S. warehouse club operator?

BEARS CIRCLING ITS STOCK AND OPTIONS

Frederic Ruffy, an options strategist at Web information
site WhatsTrading.com, said bearish sentiment has also spilled
into Costco's options.

The stock's put volume spiked twice in recent days, he
said. Investors often turn to put options, conveying the right
to sell a company's shares at a fixed price within a specified
time period, to speculate on potential share price weakness or
to insure their stock holdings against any adverse move.

Ruffy said on Monday, with shares trading around $45.50,
buyers were focused on October puts giving them the privilege
to sell Costco shares at $45 apiece. In all about 29,000 put
options traded on the day compared with 9,000 call options,
according to option analytics firm Trade Alert.

Call options give investors the right to buy the company's
shares at a fixed price and time.

"Since a lot of the activity has been in the October and
January 2010 expiration months, it seems to reflect a bearish
short-term view on the stock and heading into the company's
next earnings release," he said.

Costco reports fourth-quarter results in October. In May,
it posted a 29 percent drop in third-quarter profit, prompting
William Blair & Co analyst Mark Miller to recommended investors
swap out of Costco's stock and into shares of Wal-Mart Stores
Inc (WMT.N), Target Corp (TGT.N) and/or Kohl's Corp (KSS.N). He
said on Wednesday that he still stood by that recommendation.

BUYING ON THE BUMP IN THE ROAD

But Hodges Capital Management portfolio manager Gary
Bradshaw said he is bullish on the stock.

"Their same-store sales have been weak of late, and I think
that's obviously what's been putting pressure on the stock, but
they just are great merchants," he said. "We are adding to our
position not only in our funds, but in our separately managed
accounts as well."

While the stock could go lower, he said Costco is a
"quality company that's very well-managed and they're going
through a bump in the road."

"It may be a little while before the consumer comes back in
line," he added, "But I do think Costco will weather the storm
and if you look out a couple, two or three years, we really
think we'll make good money on the stock."
(Reporting by Nicole Maestri and Doris Frankel, editing by
Matthew Lewis)