Is Lousy Wal-Mart Forecast a Broad Sell Signal?
http://www.cnbc.com/id/49842266
Published:
Thursday, 15 Nov 2012 | 1:30 PM ET
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By: Lee Brodie
Producer
Producer
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Considering
bellwether Wal-Mart just issued disappointing guidance and said
‘economic conditions continue to pressure customers’ you should sell the
space, right?
If you're a retail trader, that would probably be your knee-jerk reaction.
And it would stand to reason because Wal-Mart [WMT 68.72
-2.59
(-3.63%)
] alone accounts for nearly 10 percent of nonautomotive retail spending in the U.S.
Weak results are typically interpreted as a sign that middle class shoppers are struggling, stretching every dollar until the next payday.
If you're a retail trader, that would probably be your knee-jerk reaction.
And it would stand to reason because Wal-Mart [WMT 68.72
-2.59
(-3.63%)
] alone accounts for nearly 10 percent of nonautomotive retail spending in the U.S.Weak results are typically interpreted as a sign that middle class shoppers are struggling, stretching every dollar until the next payday.
Conventional wisdom says run in the other direction.
But before you hit the sell button, there's something you should know - the pros see it differently. On CNBC's Fast Money Halftime Report, top traders Mike Murphy, founder and managing partner at Rosecliff Capital, and Josh Brown, author of The Reformed Broker blog, said there’s more to consider.
But before you hit the sell button, there's something you should know - the pros see it differently. On CNBC's Fast Money Halftime Report, top traders Mike Murphy, founder and managing partner at Rosecliff Capital, and Josh Brown, author of The Reformed Broker blog, said there’s more to consider.
First there are fundamentals. “If we go over the fiscal cliff discount retailers will do well,” said Murphy.
Also Wal-Mart has been able to turn around its U.S. business by fixing the mistakes it made in merchandising and pricing. It's hammering its low price message again. It's also returned thousands of items to its shelves after a campaign to reduce clutter in its stores backfired.
“I still like Wal-Mart,” agreed Brown.
Then there are the latest results from rival Target [TGT 62.44
1.06
(+1.73%)
] – which are far more impressive.
Target reported quarterly earnings on Thursday that surpassed analysts' expectations as the discount chain lured shoppers with a wider variety of food products and 5-percent discounts for its cardholders.
Results suggest shoppers continue to gravitate toward value.
Trader Stephanie Link also thinks the trade has legs.
However, she prefers playing the thesis with Dollar Tree [DLTR 39.70
1.94
(+5.14%)
], which she thinks presents greater value. “It’s trading 13 times forward estimates well below the historical range,” she said.
All told, the traders say don’t let Wal-Mart results fool you. There are still places to play in the space.
Also Wal-Mart has been able to turn around its U.S. business by fixing the mistakes it made in merchandising and pricing. It's hammering its low price message again. It's also returned thousands of items to its shelves after a campaign to reduce clutter in its stores backfired.
“I still like Wal-Mart,” agreed Brown.
Then there are the latest results from rival Target [TGT 62.44
1.06
(+1.73%)
] – which are far more impressive.Target reported quarterly earnings on Thursday that surpassed analysts' expectations as the discount chain lured shoppers with a wider variety of food products and 5-percent discounts for its cardholders.
Results suggest shoppers continue to gravitate toward value.
Trader Stephanie Link also thinks the trade has legs.
However, she prefers playing the thesis with Dollar Tree [DLTR 39.70
1.94
(+5.14%)
], which she thinks presents greater value. “It’s trading 13 times forward estimates well below the historical range,” she said.All told, the traders say don’t let Wal-Mart results fool you. There are still places to play in the space.
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