It to a while for Walmart (NYSE:WMT) to right itself after the spectacular crash it experienced (along with many other stocks), but WMT stock now sits a couple of percentage points higher than it did six months ago. But as we come into spring, if the coronavirus ebbs, so too might Walmart’s shares.
Likely driven by warmer weather and the increasing use of drugs, the U.S. coronavirus crisis started showing signs of easing and being much less intense than expected in the first week of April.
With that trend likely to intensify in the coming weeks, life in America is likely to become more normal sooner than many had expected. As a result, the outlook for the stock is mixed over the longer term.
A Look into May
The statistical model which the American government had previously used, compiled by the University of Washington’s Institute for Health Metrics and Evaluation (WHIME), had predicted that America’s daily deaths from coronavirus would peak at more than 3,100 on April. 15. But on April 7, only eight days before the estimated peak, around 1,900 new deaths were reported.
Further, on April 6, the CDC reduced its estimate of the total deaths from coronavirus to 50,000-140,000 from 100,000-200,000. The latter estimate was in-line with a previous estimate by WHIME. WHIME’s model probably greatly underestimated the positive impact of warmer weather and drugs on the death totals.
Meanwhile, on April 7, the new cases of coronavirus fell to 28,600 from 30,300 the previous day and over 34,000 on April 4, and New York Governor Andrew Cuomo said that new hospitalizations in the state were plateauing. Both developments are signs that the virus is starting to peak in the U.S. earlier than expected.
With the death totals trending tremendously lower than previously expected, the Trump administration is signaling that it could decide within a month to recommend easing the mass closures of the country’s businesses.
The Implications for WMT Stock
Walmart has done extremely well during the nation’s near-lockdown. According to The Wall Street Journal, the giant retailer’s sales jumped almost 20% year-over-year in March. Meanwhile, in the month that ended April 6, WMT stock rose 5%, outperforming the stock market by a huge amount.
But in May, as many retailers that compete with Walmart reopen, such as TJX’s (NYSE:TJX) stores, Gap’s (NYSE:GPS) Old Navy, and many mom-and-pop stores, Walmart’s sales aren’t going to be jumping 20% YOY anymore.
In fact, in some categories like clothing, Walmart’s sales could even fall YOY as millions of consumers return to the stores they weren’t able to visit during the coronavirus crisis.
But other consumers will be “creatures of habit” who will keep going back to Walmart and Walmart.com to get a very high percentage of their food, clothing and drugs. Similarly, WMT stock will seem much less compelling to investors than the shares of other retailers whose stock prices had plummeted during the crisis and whose businesses will have come back from the dead.
The Bottom Line on WMT Stock
The coming easing of the coronavirus crisis will have mixed implications for Walmart. Meanwhile, the company’s shares are trading at a forward price-earnings ratio ( based on analysts’ average 2020 earnings per share estimate) of 22. That’s well above the stock market’s average forward P/E ratio.
Given that situation, I would advise investors to avoid Walmart’s stock. For those looking for a large retailer that specializes in consumer staples, a much better choice is Kroger (NYSE:KR).
The supermarket chain only began large-scale investments in its eCommerce business a couple of years ago. As a consequence, it should continue to benefit from the bump that Walmart received for a couple of years after tremendously boosting its investments in eCommerce about five years ago.
Further, many of Kroger’s top competitors have been open during the crisis. As a result, it should not suffer as much as Walmart from an exodus to its competitors when the mass closures ease. And Kroger should also benefit from consumers getting used to buying more clothes at the grocery chain’s stores, while KR stock is trading at a much lower forward P/E ratio of 13.
As of this writing, Larry Ramer did not own any of the aforementioned securities. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
