3 Big Reasons To Like A Beaten Down Walmart Stock

3 Big Reasons To Like A Beaten Down Walmart Stock

Valuations and Technicals point to higher prices, as WMT finally finds its footing.



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Stocks suffered a terrible day on Friday. All major indices (SPY and DIA) were down over 2% on Friday as stagflation again dominated. Gas prices above $5. 00 per gallon and rising food prices are putting a crimp in the consumer.

There were still a few stocks which showed glimmers green during the market slaughter. One of these was Walmart (WMT), previously punished and pummeled.

Most investors are aware that Target (TGT) and Walmart have been having financial difficulties recently. Rising fuel and labor costs, along with an increase in inventory, had a dramatic impact on earnings. While the company lowered profit expectations it actually raised the sales outlook. Still, WMT stock paid the price and dropped over 20%.

Shares, however, are looking decidedly more attractive at $120 versus $150. Here are three reasons WMT stock is likely to recover from the worst.

Valuations

Walmart is a Buy rated stock in the POWR Ratings. It is also in the Strong Buy rated Grocery/Big Box Retailers Industry, ranking number 14 out of 37. Current Price/Sales stands at a three year low of just 0.58. Although the latest earnings were a disaster for the company, the market is likely to be reacting too strongly.

WMT now trades at well under a 20x P/E on a 2023 forward basis. The dividend yield is a respectable 1 84% with a payout ratio under 50%. This stock is the safest for investors and fund managers in this market environment. Maybe that’s why the average analyst price target is still a rather robust $157 per share.

Technicals

WMT stock was extremely oversold following the earnings torpedo. However, they eventually recovered their footing. The 9-day RSI reached a two-year low, before stabilizing. MACD also reached an extreme, then turned higher. Bollinger Percent B reached a very negative territory, but is now solidly in the positive zone. Walmart stock had previously experienced significant lows when all of these indicators were aligned in a similar way in the past.

As mentioned, Walmart was among the few stocks that actually rose Friday. WMT stock gained 0. 56% compared to a nearly 3% loss for the S&P 500. Shares once again bounced off the major support area near $120. WMT opened lower and close to the lows of day, but then moved closer and higher to the highs of day.

This type of reversal is often a sign that the previous trend is over. The sellers might have given up and the buyers may now be in control. This signal is even stronger because it occurred in a major support area.

Sentiment

During stressful economic times,

Walmart can be viewed in a positive light. Red-hot inflation has caused real wages to fall by nearly 3% compared to a year ago. While households still have to provide food for their families and diapers for their children, they are much more price-sensitive. This favors lower-priced retailers such as Walmart.

WMT stock can be a solid defensive stock and will outperform in bear markets. As the earnings cloud has lifted a little, Walmart stock should be a relative outperformer to overall market in the coming weeks.

The POWR Options Portfolio took a bullish call position in the August $125 calls on May 23 following earnings. We exited the trade on June 6 for an overall net gain of 27% as Walmart shares stalled near the $130 level. Now that WMT has once again supported the portfolio, it may be possible for the portfolio to re-enter a bullish call trade.

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What To Do Next?

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All the Best!

Tim Biggam

Editor, POWR Options Newsletter


WMT shares closed at $121. 70 on Friday, up $0. 68 ( 0.56%). Year-to-date, WMT has declined -15. 26%, versus a -17. 67% rise in the benchmark S&P 500 index during the same period.


About the Author: Tim Biggam

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. He is a regular contributor to the TD Ameritrade Network’s “Morning Trade Live” and makes frequent appearances on Bloomberg TV. His passion is to simplify the complex world of options and make it more accessible to everyday traders. Tim is the editor of the POWR Options newsletter. Find out more about Tim and his background.

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