Costco (COST) - Get Report has recently been dragged down by Walmart's (WMT) - Get Report blunders, creating a rare opportunity to purchase shares at a discount.

Action Alerts PLUS portfolio Manager Jim Cramer and Director of Research Jack Mohr discuss why they initiated a new position in Costco after Walmart's guidance reduction took down the entire retail complex.

While some investors painted retail with one brush, we think that's lazy thinking. In fact, we believe Costco is simply eating Walmart's lunch -- the company has a differentiated business model that lends itself to taking share from archaic players like Walmart.

In our view, Walmart's waning profitability is largely the result of the fact that it is early in a new, three- to five-year investment cycle, in which expenses are set to outpace sales.

This is the death knoll for any retailer, at least in the intermediate term. Costco is on a different level. As consumer spending trends remain volatile across the industry, we believe the ability to drive sales and visibility into earnings are two of the most highly sought- after attributes a company can have.

Costco has strong international growth potential and higher margins in international locations. Costco's proven expense structure is in a league of its own. From a sales perspective, the company continues to gain market share due to store expansion and 3%-5% traffic increases.

It is truly rare to find a proven international model, and Costco has a lot of room to grow in Canada, Mexico, Australia and Asia. Moreover, roughly half of the mix is consumable and the customer base is a mid- to upper-income demographic ($96,000 per year vs. Walmart's in the low $40,000 range).

In addition, membership fees provide both stability and long-term visibility to operating margins, and renewal rates are over 90% in the U.S. and Canada. Net-net, these factors support sustained, long-term EPS growth rate in the low-teens, which lends itself to a "buy-the-dips" philosophy and justifies a high multiple attribution.

At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS held no positions in stocks mentioned.