Traders have largely priced in a recession, with slowing growth all but certain for some time to come. The slowdown is being done in order to combat high inflation. Part of that is to lower prices. That could cause some big changes for retail companies.
Investors already saw Walmart (WMT) warn that they would miss their full-year profit target, as a number of items would have to go on sale in order for the company to clear its excess inventory.
While that’s tough on shares, Walmart will survive, and likely even thrive in a downturn as investors ship at lower-end outlets. In fact, the company still sees overall sales rising… just not on an inflation-adjusted basis.
The stock is down about 17 percent over the past year. But the stock has gone from nearly 49 times earnings last year when the outlook was incredibly bullish, to around 20 times earnings today. And given Walmart’s scope and size, it’s a likely survivor in today’s economy, with an improving outlook as inflation comes down.
Action to take: Investors could start picking up shares here, with an eye towards buying more on any further weakness in the coming months. The stock currently yields about 1.7 percent.
For traders, the January 2023 $150 calls, last going for about $1.50, could rebound with shares in the coming months. Look to buy on a down day – like Tuesday’s big drop—and look to grab quick mid-double-digit gains. Such a move can potentially occur multiple times in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.