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need socks and stocks. You don’t wanna pay. Is Wal-Mart your way? Yes socks and maybe stock. Back in the day there was Y2K. While others worried over the end of the world Wal-Mart was thinking groceries, and an even bigger future. Netflix was new and busy over a predictive algorithm. VHS still spooled and trash-strewn cable snorted and roared their way and robbed everybody every night.

Meanwhile Wal-Mart thought about–right, Fa King groceries, and a blue heaven of fabulous sprawling one-stop shopping, the way mother never did it.  Simultaneously,  Thomas Jefferson–oops, Jeff Bezos, was laboring like some mad mole out in the mists of Seattle. Jeff was re-envisioning America. Let’s face it. Americans are professionals, at shopping, and doing so from home has always been the inevitable American Dream.

Straight out of Jeff’s bubbling cooker popped Marc Lore, freshly resentful and bent with intent. Burning hot in Hoboken Marc sharpened a savage shopping scheme with which to gut-punch Bezos. Lore promptly began Jet.com behind the clever idea of even lower online prices, driven by efficiency and extreme cost cutting, mostly on shipping. Customers could save if willing to wait, bundle purchases, and select vendors within the same region, and wait for it. Big surprise. Wal-Mart noticed and popped out their Wal-let.

Jet.com’s now part of Wal-Mart’s fast growing e-commerce push, and right again–groceries are the center of that. And after we remind you that Sam Walton’s Wal-Mart was begun in 1962 in the Ozarks, Rogers Arkansas, not Bentonville, you’ll have heard the roots of modern American Retail. “Should You? Wal-Mart?”

Here

we are again–retail’s reckoning season.  Make the year or be square until next time.  As we speed directly into yet another crazed holiday shopping spree think about snow-shoveling shares of WMT into your cart.  Think, don’t shovel just yet.  And why not?  They’re big, flush, and everyday.

Who’s talking WMT?  Everybody.  Last night it was Cramer–“…ultimately the big winner.”  Two days ago Moody’s analyst Charles O’Shea shouted “Wal-Mart’s in the best shape I’ve seen over the seventeen years I’ve been covering it.”  Should we care?  It’s retail for god’s sake.  Yet Wal-Mart has long been viewed by many as one of the great recession-proof plays.  Is it?  Well, yeah.  But do you truly trust low-margin businesses?  Think groceries.

  “What

about their e-commerce?” you ask?  Again, think groceries.  Oh boy.  A 1%-2% margin leaves little room for tripping-up.  Nor will it ever provide soaring AWS-strong growth.  Good news.  Wal-Mart’s not an anti-trust target.  What does CFRA analyst Garrett Nelson have to say?  “E-commerce was only about 5% of WMT’s total U.S. revenue last year.  But it’s growing at upwards of 40%.  If you look at Amazon versus Wal-mart that’s triple the growth.”

That’s triple the growth of AMZN’s e-commerce side perhaps, not Amazon Web Services.  AWS has been growing at a similar rate for years.  Nelson continues “That’s what’s really driving the same-store sales growth, grocery pick-up, and less so the delivery.”

Three years ago Wal-Mart acquired Jet.com as a nitrous oxide boost for it’s crippled online existence.  It didn’t work.  Now it’s groceries.  Fact.  WMT’s online business loses money, and will still lose more money this year than last.  WMT is buying revenue growth at yet accelerating loses.  How long can you call that a success?  Ask Weyfair.  They’re doing the exact same thing, only faster.

 

 

What

do we hear from the top concerning the nature of the company’s growth?  “Our strength is being driven by food, which is good,” says Wal-Mart CEO Doug McMillon.  “We need to translate that.”  McMillon is referring to a translation into a wider online growth profile including general merchandise.  What are analysts yet seeing following a strong Q3 report?  “A lot of the growth is coming from the online grocery pick-up, accounting for a quarter to a third of the U.S. business,” says UBS analyst Michael Lasser  “It may be a little harder to maintain the 3% comp growth.”   

Wal-Mart’s

been working vigorously overseas now for years, and now is involved in that foul form of partnership known as a “joint venture,” this one with JD.com in China.  No.  Do those ever work well for Americans?  How have the company’s other international expansion efforts gone?   Their push into India by purchasing “FlipKart” is going very slowly, as everyone else’s has when braving the ferocious and legendary Indian bureaucracy.

In India WMT faces distinctly protectionist law makers unafraid of any complaints from corporate America.  Stumbling blocks are what they’ve been finding.  Think restrictions against strategic warehouse locating, intentionally designed to protect local companies.  And else where?  Not good.  They’ve altogether abandoned efforts in Germany, Brazil, South Korea, and are about to battle in court to leave the UK.  And back at home–and how much is it to get in?

-VALUATION-

Large cap with growth, and a wide moat, and a dividend–these are the characteristic we like now.  Wal-Mart fits, except for the price.  How much does the good cost with WMT?  17% above the current S&P average of 22.7.  WMT’s 4Q P/E is now 26.3.  On forward earnings estimates you’re paying a 43% premium to the market: WMT forward P/E 24.2, S&P 16.9.  WMT’s sells for a 24% premium on free cash.

You can smile about their price-to-sales.  Over the past four quarters WMT shines at a price-to-sales of 0.66, to the market’s 2.22, or 3.4x cheaper.  What do you get for your money?  You would have gotten almost a 20% share price appreciation over the last six months and 30% YTD.   If you held WMT for a year and reinvested the dividend, you’d be 21% better off, or 84% over three, and 65% over the past five.  What sort of dividend are they kickin’ out now?  1.76%.  That’s a bit down.  The share price appreciation has sucked down the yield.

What’s Wal-Mart facing?  Here’s a Morningstar take; “Competition’s fierce and Wal-Mart will has to innovate to keep pace…”  Think Target’s killer “Shipt” program.  Awesome.  Order online and pick it up at the curb an hour or two later.  No–scratch that.  “Scroll through the aisles. Get it in as little as an hour.”  Nice.  And if you’re too drunk to drive–

As

we move into the all-important holiday shopping season WMT’s momentum is slowing.  Shares have been a haven for investors bombarded by recession speak.  We all saw the rotation to safety, utilities, REITs, and staples.  Over the last month, and 20-day periods, we’ve also seen all three fall in relative sector performance.

Over the past month we’ve witnessed Consumer Staples fall to 9th place, returning only 0.76%.  Both Real Estate and Utilities are negative.  Meanwhile Wal-Mart’s 14 day stochastic oscillator, a momentum gauge, is falling.  $115.12 is viewed as a key support level, the violation of which reads as confirmation of a negative trend reversal.  The On balance volume indicator(OBV) suggests the selling pressure is on–shares under distribution.  Taken together these suggest lower prices ahead.

Wal-Mart(WMT: NYSE.) Close 11-15-19.

Is

Wal-Mart stock a buy?  Yes, if you can live with the price.  Cramer suggested just like night “buy slowly.”  Wal-Mart’s a perfect example of smart investing in uncertain times, with the exception of valuation.  We feel it’s run too far and is thus too expensive.  But many like it, for the longer haul.  “Recession, no recession” who the hell knows?  Fact.  Nobody.  Yet economic uncertainty is the key note of this market.  That’s real, as is global economic slowing.  “Where’s the safety?” you may wonder.

Large cap growth.  Established growers, with dividends.  Stocks with P/Es below the market average.  But for that you have to give something up–think Ford.   Wal-Mart is all the good but the price.  It’s has flown 30% higher this year.  There’s only so much fuel in any tank.  WMT’s margins won’t buy a lot of fuel this high up.  The technicals plainly tell us it’s running out.  We don’t want any here.  As always, good luck and good investing.  Sj.

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