Walmart (WMT) reported disappointing Q4 earnings Thursday morning, its first under newly appointed CEO Doug McMillon. Business at the world’s largest retailer continues to suffer from economic and competitive headwinds. Meanwhile, rival Target (TGT) works its way through its own issues, including a huge customer data breach.
In short, neither company is firing on all cylinders.
In recent years TGT stock has flatlined, achieving an annualized total return of 5.3% through February 19. That’s 789 basis points lower than WMT stock and 824 bps less than the S&P 500. One stock looks like a better buy at the moment, but let’s dig into the details to see if that’s really true.
Three Things to Like About WMT Stock
Buy American: Walmart has pledged to buy an additional $250 billion in American-made products over the next 10 years. You can be as cynical as you want about its decision, but this moves the company a little closer to its founder’s vision. In the 1980s, Sam Walton encouraged Walmart buyers to buy American-made goods when it was cost competitive. It didn’t mean WMT would buy all of its merchandise in the U.S. — just that it would try where possible. The same holds true today, but in this case the company has put an actual number to the pledge. If WMT stock has any hope of taking flight, it needs Americans to increase their spending at its stores. American-made products are one way to get them to do that.
Canada: Target’s not the only discount retailer making a splash north of the border. WMT announced Feb. 4 that it’s spending $451 million in Canada over the next year to open 35 supercenter stores — including groceries, pharmacies and all the other things normally associated with its bigger footprint. By the end of January 2015, Walmart will have 395 stores in Canada, including 282 of the supercenter variety. That’s almost three times as many as its Minneapolis rival. With additional funds invested in its distribution network and e-commerce business, WMT stock should benefit from the head-to-head competition.
Doug McMillon: In late December, I ranked five newly appointed CEOs on how they’d perform in 2014. Walmart’s new boss was on the list, having moved over from the top job at Walmart International. I concluded that his relative youth — he’s 47 — along with his experience operating a business that’s actually growing will help him fix the ailing WMT stock. A few months later, I’m standing by that assessment. McMillon can be a great leader for the company and for WMT stock.
So, what about the competition? Well…