The economy may be turning around, but Walmart (WMT), the world’s biggest retailer, hasn’t been a harbinger of that turn … yet.
The stock is trading near its 52-week lows, and has been unsuccessfully trying to find some upside traction in recent trading.
Part of the problem has been global exposure. Most economies aren’t doing as well as the U.S. Also, the strong dollar, especially in the past year, has hurt revenue growth.
On top of those macro challenges, Walmart also has been pushed out of the spotlight by online rival Amazon (AMZN). AMZN is up 68% year to date; WMT stock is down 25%.
Walmart Stock’s Upside
But Walmart has a number of factors in its favor at this point, not the least of which is its value. WMT is trading at a price-to-earnings ratio of 13. AMZN is trading at more than 100 times profit forecasts for 2016. And Walmart is profitable every quarter, which Amazon can’t say.
Amazon’s strategy of essentially spending everything it makes moving into new markets, upgrading its winning products and expanding its footprint greatly rewards shareholders when it works. And in the past year, it has worked very well. But when it doesn’t, there is usually a sobering reckoning.
WMT has a much more traditional style and is built for the long term. In the past year, it has had to contend with the challenges of a stagnant global economy, raising the wages of about 600,000 of its 1.4 million U.S. workers, fighting to stay relevant in the online world and staying competitive with hungry up-and-comers like Target (TGT), AMZN and Dollar Tree (DLTR).
But major long-term value investors like Warren Buffett are sticking by Walmart stock, regardless of how sexy the story is. And the fact is, AMZN has a major growth division that has absolutely nothing to do with retail – its cloud storage resources. This component distorts any real comparison with Walmart.
Walmart is also built to be accessible to shoppers that have no qualms about going shopping. You don’t pay $99 for a membership to shop WMT’s discount prices.
And WMT has spent a lot of time and money in the past upping its online game. This has hurt Walmart stock in recent quarters, but we’ll start to see it paying off in the second half of the year.
New Line Could Boost WMT
Also, this month, WMT is launching a housewares line with Ree Drummond, a New York Times bestselling cookbook author, host of her own show on the Food Network and writer of the extremely popular The Pioneer Woman blog. Products went on sale online Sept. 1, and will be available in stores on Sept. 14. This should give a boost to revenue in coming quarters, especially during the upcoming holiday season.
It’s also important to note that Walmart is a big ship to turn. Its smaller competitors get more press for their moves. And most of those competitors are only battling WMT in the U.S. market.
Walmart has also made a renewed effort this year to expand its Neighborhood Markets. These are smaller-format grocery stores and pharmacies that are directly competing with Whole Foods (WFM), Trader Joe’s and Kroger (KR). These stores offer the same discounted prices as Supercenters, but they’re much more accessible and will be located in more urban centers.
And don’t forget that at current prices, WMT stock is throwing off an attractive 3% dividend yield. That is certainly a nice reward for your patience as you wait for these changes to hit the bottom line.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
