Walmart: A Smart Defensive Choice During Bear Markets

Seeking Alpha2021-11-04

Summary Walmart has underperformed the strong market advance of 2021, but should survive far better than the S&P 500 average given a serious bear phase is next. Historically, Walmart is a top choice ...

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精彩评论

Sling1331
2021-11-05
Sling1331
Good
MRRICH
2021-11-04
MRRICH
Ok
- yaozong7:
  V strong defensive play
June_C
2021-11-04
June_C
Wooo.. great
- MRRICH:
  Nice
JovRene
2021-11-04
JovRene
Cool
- 滚股怪:
  Cool er
- June_C:
  Like
Poisonz
2021-11-04
Poisonz
Nice
CHkoh
2021-11-04
CHkoh
ok

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Slow but steady growth trends in the overall U.S. economy have produced an annualized total return of +14% the past five years, about what has been generated by Wall Street equity investments generally. My last mention of the company in an article here during August 2020 found a standoff between positive and negative forces for the stock, with an expectation of an eventual decline in price. While a meaningful sell-off never materialized, its performance has been particularly lackluster vs. other U.S. stocks, general merchandise peers, and the rest of the retail industry since then, pictured below. My comparison group includes Target(TGT),Costco(COST),Dollar General(DG), and Amazon(AMZN), plus the Invesco NASDAQ 100 ETF(QQQ),SPDR S&P 500 ETF(SPY), and SPDR S&P Retail ETF(XRT).\n\nThe silver lining for Walmart shareholders is the company may be better situated for a major bear market on Wall Street and/or the appearance of another recession, than the vast majority of individual stocks you can buy in early November. Defensive trading characteristics in the past, an interesting dividend story today, and a worthwhile \"relative\" valuation are all arguments to stay the course (assuming you already own a position), or seriously consider purchasing a stake in this mega-cap blue chip. If you are worried about a sizable equity market setback like I am, Walmart could be an excellent place to park some investment capital, especially inside hedged long/short portfolio designs.\nOutperformance in Bear Markets\nFor students of market history, Walmart has been the most consistent \"outperformer\" in the retail group during past bear markets of greater than 15%, over the last two decades. Below are total return performance graphs vs. the same peer business group and general market indexes. The pandemic panic drop between January and the end of March 2020 is pictured, alongside the late 2018 FED tightening drawdown, second half of 2011 U.S. Treasury downgrade selling, late 2007 to March 2009 Great Recession, and Dotcom bust of September 2000 to October 2002. Believe it or not, Walmart traded flat to higher for investors during each of these equity market liquidation spans! [Dollar General and the SPDR Retail ETF did not exist in the last two examples.]\n\nDividend Yield\nWalmart's dividend yield has been on the higher end of the range vs. major competitors and the S&P 500 for a number of years, but has now morphed into the dividend leader for our peer group since summertime. The 1.46% yield is far from extraordinary vs. America's rising inflation rate backdrop in 2021. The good news regarding inflation is the company should be able to easily pass along rising goods pricing and labor costs, as consumers are flush with cash. If Walmart cannot raise prices to consumers in the future, the whole economy and equity market is in serious trouble. In addition, the $2.20 dividend represents 20% of trailing cash flow generation, and 30% of expected forward earnings. If the economy is functioning more normally next year (as pandemic issues fade), Walmart could raise its dividend payout far stronger than the few pennies per year increase of late.\n\nImproving Relative Valuation\nCompared to the top online merchandiser, other national supercenter chains, and the main low-rent dollar store, Walmart holds the lowest price to forward 1-year sales multiple. Plus, valuations on price to earnings estimates into 2022-23 are starting to make a stronger case for Walmart ownership.\n\nBasic analysis of Walmart's underlying fundamental worth highlights a stock that is fairly priced vs. the last 30 years of trading. Price to trailing annual sales, cash flow and book value are on the high end of trading the last decade, but well below normal on a 30-year review (although potential growth rates were higher decades ago). A normalized P/E of less than 25x into 2022 is also very average for Walmart historically. In context, you might expect a more expensive position from America's leading physical-store retailer during arguably the most overvalued condition ever for U.S. equities in late 2021. If you think Walmart is too expensive, then about 90% of Wall Street alternatives should also logically be avoided. My conclusion: if you can gulp high valuations from the current market, Walmart's underlying business setup is worthy of your consideration.\n\nFinal Thoughts\nMy family uses the curbside pickup service at our local Walmart, a reaction to the pandemic. We actually love the experience and time saved. So, this invention will remain part of our shopping routine into the future. We tried the Walmart+ free delivery service. It's turned into a complete fiasco. Sometimes we'll receive six or seven deliveries off our same order from various gig-economy DoorDash(DASH) car drivers, each with a few items from different stores and warehouses in the area (requiring a tip for our \"free\" delivery), on top of a FedEx(FDX) box or two a week later. If you want to know what's messing up the supply chain inside America, the Walmart+ creation is another suspect. Somehow, management needs to figure out a better single delivery routine for online orders.\nWalmart's Seeking Alpha Quant Ranking is above-average vs. retailing peers and the overall stock market, pictured below. This score fits with my research and thinking. The company has a solid footing for minor gains, although a monster climb seems unlikely from $149 a share.\n\nI rate the technical chart pattern as constructive, but lacking standout accumulation patterns. Momentum analysis suggests a market-neutral to slightly bullish future.\n\nTo me, based on 35 years of trading experience, playing defense in portfolio construction should be your primary goal at the end of 2021. Walmart's strong outperformance history during previous Wall Street shakeouts, and a relative valuation setup that looks quite reasonable are the excuses for me to become more positive on its investment outlook.\nThe biggest risks are macroeconomic in nature, including the possibility of a stock market crash, or a black swan geopolitical confrontation with China. Both scenarios would send all stocks dramatically lower, including Walmart.\nOutside of these super-bear developments, I am projecting single digit total returns from Walmart in the 5-10% range annually over the next 3-5 years. While this forecast may sound uninspiring, if the S&P 500 ends up declining -20% to -30% over the equivalent period as interest rates rise and valuations come back to earth, a +15% to +40% net gain in Walmart shares may prove a truly bullish result into 2024-26. Again, the potential for dramatic outperformance in a bear market during 2022 is my primary bullish 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