Shares of Wal-Mart Stores Inc (NYSE:WMT) lost 5% of their value in a single day after Amazon.com, Inc. (NASDAQ:AMZN) announced plans to take over the world — ahem, I mean, buy Whole Foods Market, Inc. (NASDAQ:WFM).
The e-commerce giant — which started as an online bookseller but has since expanded dramatically to become an “everything store” that even produces its own streaming content — has been pushing into the grocery business for some time, most notably through Amazon Fresh, the grocery delivery service available only to Amazon Prime members.
The purchase of Whole Foods sports a price tag of $13.7 billion, and as Fortune aptly summarized, marks Amazon’s “biggest move to date into brick-and-mortar retailing.”
That’s likely why investors of WMT got so immediately skittish. Walmart has been working for some time to expand its online presence to better compete with Amazon. Now, though, Amazon is coming for the area in which WMT stock is incumbent.
Kind of.
What to Expect From WMT Stock
While there is indeed competition between Walmart and Amazon, the grocery business is only a small part of each company’s sales mix and, for WMT stock especially, a part with not-so-hot margins. It’s not like groceries represent Walmart’s main profit machine and Amazon is coming for its apple pie.
Instead, the consumer base for Whole Foods and Walmart’s food — even its organics — are vastly different. And it’s unclear how exactly the Amazon ownership will shift or skew who goes to Whole Foods. Without more of a vision, there’s no reason for WMT stock fans to panic.
In fact, I’d argue this dip — although it’s not grand dip — represents a solid buying opportunity. WMT stock is a pro at weathering storms, where in the economy or with regards to competitors, and management knows how to reward investors even as that’s happening.
The only sign that Walmart might be a little worried is this: The retailer is telling some partners and suppliers not to run things on Amazon Web Services. But that suggests to me that WMT is just a bit salty, not necessarily scared. There’s little chance this will have a substantial impact on either business.
Moody’s analyst Charles O’Shea agreed, writing:
“While the deal will certainly help Amazon’s competitive position in the grocery business, the proposed deal still falls well short of being a real threat to Walmart, which remains the world’s biggest retailer and grocer.”
While Walmart suffered a pretty dramatically in 2015, it’s been regaining momentum ever since and I feel confident in its ability to keep climbing. Over the past five years, earnings shrank by 3% per year and the company still managed to gain 10% overall.
Over the next five years, annual growth of almost 6% is expected — not bad for a company that also yields close to 3%.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
