I know I won’t win any popularity contests for today’s write-up. Yesterday, we saw an incredible move up from the largest private employer on the planet. Today I want to short the notion that Wal-Mart Stores Inc (NYSE:WMT) can sustain this rally for much longer.
Before you judge me as a perma-bear, most of my trades on WMT have been bullish. But at these levels, even with the $20 billion in buybacks on the horizon, I think there’s a good chance of a pullback in the stock.
Even then, I’m not calling for a complete correction, nor am I dissing the company. I am merely trading the short-term price action as I see it.
I read “expert” opinion suggesting to consider WMT from a tech company perspective, and that is a notion that I reject. I shop at their stores often, and it is still the no-frills store that it has always been. Help is still sub-par and shelves are not stocked properly. Forget about getting technical help from the technology departments.
This is not a bad thing, as it is its shtick.
Until those things change, WMT is still the low-price leader! Shifting sales online doesn’t make it a tech company. It has miles to go before showing overall growth worthy of a tech label. The whole pie has to grow, and not just the online slice, else there would be cannibalization.
To make matters worse it is not the only low margin operator anymore. The title of king of low margins is now Amazon.com, Inc. (NASDAQ:AMZN) and it’s gunning for WMT. Let’s not also forget Costco Wholesale Corporation (NASDAQ:COST).
As I said earlier, I am not bearish WMT fundamentals. In fact I embrace them and I will use them today to mitigate my bearish risk. I will spend no money out of pocket to short the price action for the next few months. If I were bearish the company fundamentals I would short it out right.
If I were shorting the stock outright I would expose myself to unlimited losses for as long as WMT rallies. This is unacceptable risk to me, so instead I will use WMT options. There I can limit my maximum loss for better peace of mind.