Shares of retail giant Walmart (NYSE:WMT) continue to slumber. WMT stock has been trapped in a well-defined trading range ever since shares failed to break-out to new all-time highs. A dependable dividend yield of just over 1.5% combined with steady and solid fundamentals make Walmart a solid value. Time to be a buyer of WMT stock on any further weakness.
Louis Navallier and the InvestorPlace Research Staff recently took a deep dive into the reasons to like WMT stock at current levels. They too felt the recent earnings beat along with solid fundamentals and dividend yield make Walmart a safe refuge in this tumultuous market. The article goes on to say that WMT stock is a solid choice for risk conscious investors. 2022 may be year where it pays to acknowledge risk.
The same group just mentioned Walmart as a recession proof stock that thrived during the Great Recession of 2008. They feel it is a safe bet during trying economic times. It may be time to hunker down a little in this market environment.
Certainly the analysts agree with this somewhat bullish assessment. Walmart is rated a moderate buy at TipRanks. The average analysts price target is $163.48 which implies about 14.5% potential upside from current prices. The high forecast is $185 while the lowest checks in at $136. Solid, if not spectacular, performance.
The Technical Take
WMT stock is about as neutral as it gets from a technical analysis perspective. Nine-day RSI has fallen back to 50 after nearing overbought readings. MACD is back at zero after reaching an extreme. Bollinger Percent B fell back to a midline level near 50. Shares closed just above the 20-day moving average. Not exactly compelling at current prices.
Source: The thinkorswim® platform from TD Ameritrade
There is major downside support at the $135 level. WMT stock has repeatedly bounced off this price over the past year. Each of those times coincided with shares getting oversold on all the above mentioned technical metrics.
Look for Walmart stock to retest those lows again sometime soon. This is especially true since shares failed once again to break-out past the $145 resistance area.
Stock traders should probably be patient and wait for a pullback before looking to take a long position in Walmart stock. The recent price action shows it is very likely that WMT will give you an opportunity to get in at lower levels.
Selling out-of-the money puts is an ideal way to get paid now to be a buyer of Walmart shares at cheaper prices.
How to Trade WMT Stock Now
Options are the way to go here: Sell the WMT JUN $135 at $2.70.
Maximum gain on the trade is $270 per put option sold. Maximum risk is that you own Walmart stock at $132.30 ($135 strike price less $2.70 premium received upfront).
The short $135 strike coincides with the major support level on the stock. It is also below the lowest analyst price target of $136.
Make sure your sell only as many puts that equate to the number of shares you are comfortable owning. Each put sold obligates you to be a buyer of 100 shares of Walmart stock if it closes below $135 at June expiration.
So selling three puts would mean you are potentially willing to go long 300 shares of WMT stock. Selling puts is a effective strategy for investors who are willing buyers at $135 and don’t mind being paid for that privilege.
Of course, the short put can be closed out anytime prior to expiration to avoid being assigned and buying Walmart shares.
Selling covered calls if you do get assigned and end up with WMT stock can be a way to hedge the newly acquired stock position and lower net cost and overall risk further.
On the date of publication, Tim Biggam did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
