Thursday morning, Walmart's (WMT) earnings release reminded us that the question we need to be asking isn't are people buying but rather where are people buying.
After yesterday, we know they aren't buying from Macy's (M) . This morning we see yet again they are buying from Walmart. And we can infer Target (TGT) as well as Amazon (AMZN) , along with a few specialty locations. Perhaps, what I find most ironic is the convergence we are seeing. Both Walmart, and especially Target, are adding higher-quality brand names to their offerings. And we already know you can buy everything on Amazon. To match this, stores like Macy's are focusing on off-price and online business and they aren't alone. It seems the former high-end department stores and budget-friendly big boxes may eventually meet in the middle.
Amazon wasn't the death of Walmart. Instead, Amazon, Walmart, and Target have become a three-headed monster, the Cerberus of retail, dragging old school mall anchors into the depths of Hell.
In terms of the recent quarter, Walmart pulled in earnings per shares of $1.27 on revenue of $130.4 billion. That EPS result landed a nickel ahead of expectations which is a huge deal when talking about numbers of this sheer magnitude. Comp sales rose 2.8% with e-Commerce soaring 37% against what management called challenging comparisons from a year earlier.
The key here is consistency. Walmart sees 2020 in a similar vein to 2019, but in a world plagued by a U.S.-China Trade War, tariffs, and worries about inverted rates, consistent is good. Add in the strong retail sales numbers from July and investors have every reason to be optimistic about Walmart's current quarter. The company has been able to diversify into food and grocery providing it shelter from tariff consumers and general economics. Delivery is now available in 1100 locations, pickup in 2700 locations, and Walmart's NextDay delivery service covers roughly 75% of the population. Management specifically noted strong growth in its online grocery business.
Walmart hasn't been immune to the recent market struggles. Until today, the stock has fallen nearly 9% from its highs. I do love this weekly chart for Walmart because it provides a clear technical stop. The support line, currently around $105, has been evident. Add in the fact the 21-week simple moving average (SMA) is printing $105.54 and bulls have a pretty darn good idea where the uptrend breaks. And that is the camp I want to live - with the bulls.
If you own the name, then consider a stop or a hedge around the $103 level. This provides a small cushion against volatility or stop hunting algorithms looking to pick off those just below the obvious $105 level. Two other approaches to consider are buying put protection if WMT gets close to $105 or using a stock replacement strategy. With a stock replacement strategy, an investor would swap their stock position and buy an in-the-money call position. In the case of Walmart, a December 20, 2019, or January 17, 2020, $105 call could work with the idea of rolling the strike $5 higher any time the stock moved $5 higher, and potentially out in time, after the initial entry. The key here is ONLY rolling higher; therefore, if the stock drops, you limit your risk. Using this approach, your risk should never be greater than the initial purchase, but could decline.