Wal-Mart Stores Inc (WMT) Stock Remains as Strong as Ever

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Last was supposed to be the week where all retailers took another leg lower. Amazon.com, Inc. (NASDAQ:AMZN) had its annual Prime Day this week. Those numbers were supposed to be stellar. Analysts were supposed to come in and cut estimates on other retailers. Downgrades were supposed to pour in and retail stocks were supposed to fall.

Wal-Mart Stores Inc (WMT) Stock Remains as Strong as Ever

But, that hasn’t really been the case. Amazon had its big Prime Day event and the numbers were much better than expected (sales up 60% year over year). However, the SPDR S&P Retail (ETF) (NYSEARCA:XRT) is actually up almost 3% since Monday’s sell-off. Wal-Mart Stores Inc (NYSE:WMT) stock is up more than 4% in that time-frame. Target Corporation (NYSE:TGT) stock, Kohl’s Corporation (NYSE:KSS) stock and Macy’s Inc (NYSE:M) stock are all up approximately 6%.

In other words, investors didn’t really seem to care about Prime Day’s big numbers, nor how that was apparently a sign of the times for dying retailers. Instead, they focused on Target’s big guidance boost and Goldman’s bullish note on Walmart.

It seems we may be at an inflection point in retail. Amazon’s doing great, yes, but other retailers are also starting to successfully defend themselves. Investors are starting to flirt with the idea that, just maybe, Amazon won’t dominate all of retail after all.

So, what’s the investment takeaway here?

It may be time to start buying the big retailers. And, when you talk about buying big retailers, you should always start with the biggest: Walmart stock.

Walmart and Target Signal an Inflection Point

The first bit of good news in the retail sector last week came from Target. The much-maligned retailer reported improved traffic and sales trends in the first two months of Q2. Comparable sales are now expected to be modestly positive in Q2. If true, that would end a multi-quarter streak of negative comparable sales growth. Importantly, management noted that the operational improvements were driven by some of Target’s strategic initiatives, including exclusive brand roll-outs and the Target Restock program.

In short, investors learned that Target’s new anti-Amazon programs are driving improved traffic and sales trends.

The second bit of good news in the retail sector last week came from Goldman Sachs, which added WMT stock to its Conviction Buy list. Analyst Matthew Fassler argued that WMT is as well-positioned as any mass-market retailer to succeed in the face of e-commerce and Amazon competition. He cites Walmart’s scale, small market focus, inventory discipline, improving return on capital and an attractive valuation as reasons to be bullish on WMT stock.

These two bits of good news helped propped up the retail sector, even during the week that was supposed to be owned by Amazon.

That’s bullish for retail investors. It shows that positive news from WMT and TGT is more important than negative news from AMZN. That is a huge shift in investor mentality, and marks what could be an inflection point for retail stocks.

Why WMT Looks Like a Buy

Walmart stock, though, doesn’t really need an inflection point. Unlike most other retailers, its actually green for the year. Year to date, WMT stock is up more than 10%.

Even before last week and the Goldman upgrade, WMT was showcasing to investors that it could not only survive, but thrive in an e-commerce dominated world. Last quarter, U.S. comps grew 1.4%, driven by a 1.5% increase in traffic. Meanwhile, e-commerce sales jumped 63%. The quarter before that, U.S. comps rose 1.8%, driven by a 1.4% increase in traffic. E-commerce sales jumped 29%.

The results say that Walmart is really starting to figure out the Amazon problem. Not only is WMT growing its e-commerce sales at an accelerating rate, but the company is also driving more traffic to its stores in an era when brick-and-mortar shopping is supposedly dying.

At 17x trailing earnings, WMT stock is nearing a valuation peak, which means investors should be cautious. But, with Walmart adequately addressing the problems plaguing retail right now, the stock could trade a lot higher.

Retail is turning around, and WMT stock should lead that turnaround.

As of this writing, Luke Lango was long WMT, TGT, and AMZN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/walmart-stores-inc-wmt-stock-remains-strong-as-ever/.

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