For a while the biggest threat to Walmart (NYSE:WMT) stock was Amazon (NASDAQ:AMZN). The online retail gorilla burst onto the retail sector and went on a massive rampage. Traditional competitors there suffered heavy losses if they survived at all. WMT stock survived the onslaught very well because management was ready.
The first advantage they had was that they already knew the combat skills of AMZN, the enemy. Walmart had already built its business on thin margins. They knew how to fight dirty by running low profitability to crush competitors. All they had to do was learn the online distribution channel. Judging by how well it works now, I’d say the Walmart.com experiment went well.
Walmart has been thriving and ruling retail for 58 years, so it commands respect. WMT stock, on the other hand, still does not get the kudos it deserves even now. This is not the boring old version, it delivered 100% appreciation in five years. This year it has traded like a high-tech stock moving fast in either direction. Normally that’s a problem with momentum stocks, but here it’s an advantage.
Buy WMT Stock on Dips
The thesis for WMT stock remains the same, which is to buy it on dips. It being this active is opening many doors for that. The fundamentals are still bulletproof and the business is on rails. Owning Walmart stock for the long term is not going to be a colossal financial mistake. Timing entries is usually a function of patience.
For example, this past March, WMT fell 18% into a prior base. Those who bought the dip into $125 per share reaped 14% rewards. A win this big this fast from a boring stock is impressive. It’s not dumb luck that this happened. The bullish thesis is ever-present and they only needed to pounce on the opportunity. The strategy is to know the fundamentals to get courage, and watching the technicals for the dinner bell.
Fundamentally, experts cannot poke holes in Walmart’s strategy. Meanwhile, it has set the standards for decades so they don’t need to justify their existence to anybody. You either want to own the shares or you don’t. The metrics are very stable and humble. The WMT stock investors only give it 0.7 worth of its yearly sales in the stock price. With such low expectations, they are not likely to be weak hands. The odds of big disappointment are low. In addition, it pays 1.5% dividend reward, and in the age of ZIRP that’s a nice icing on the cake.
The No. 1 goal when investing is usually to preserve capital while looking for opportunities. Walmart stock is as stable as they get, so that eliminates most disaster scenarios. As long as the equity markets are bullish, it’s relatively safe to bet on WMT stock. I hesitate using the word “safe” but in this case, the risk of total loss is infinitesimal.
In the Long Run it Works
Timing is always an issue for most investors. There are very few like Warren Buffett who shoot for long stints. His company owned WMT stock from 2005 for 13 years and it paid him 100%. My concern now is that the indices are the next risk to buying into Walmart. Stock markets are near all-time highs, so they presents extrinsic risks from market-wide corrections.
While we wait, traders should consider buying the dips into $125 per share again. For now, it is a support zone that has delivered quick upside. Conviction should remain medium at best because of the external factors. Therefore, taking partial positions leaves room to manage the risk over time in case equities fall on hard times.
A Viable Strategy
I started the article by mentioning Amazon. It has replaced Walmart in the public opinion as the big beast. I contend that Walmart is still a formidable foe in the shadows. How they steered the business into the new winds of retailing is impressive. They still dominate on Main Street and now in cyberspace as well. I recently bought oversized truck tires from Walmart.com. That is something I would have never anticipated a few years ago.
A company this old and this traditional that can transform this much deserve respect.
No one can guarantee perfect-entry timing into stocks. However, I am confident that buying WMT stock in moderation is a viable strategy in the long run. I have had this same opinion for years.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.