Category Archives: Walmart

Walmart (WMT)

Walmart (WMT) needs little introduction to most investors.

2015 has been a depressing year for WMT, The stock had fallen by about 20% from the start of the year to mid-August. After WMT’s investor day in mid-October, the stock plunged 10% as the company warned that they expect profits to drop as much as 12% in 2016 and flat revenue growth. The stock is on pace for its worst year since 1973.

Walmart is a company with a wide economic moat coming from its efficient scale and low cost advantage It’s size allows it to negotiate lower prices with suppliers, which then allows it to offer lower prices to customers. Of course, this moat is under threat from the rise of internet shopping. However, I don’t  think Walmart is going to go away anytime soon.

Many of the reasons cited by the company for it’s lower expected numbers for next year are justified or even necessary. For example, raising the minimum wage for workers should reduce the high employee turnover rate and also motivate the staff.  WMT plans to spend almost $2 billion over the next two years to improve it’s e-commerce operations, hopefully stemming the loss of business to Amazon, and maybe even winning some customers back.

Morningstar gives WMT a 5-star rating at below $60, with a low uncertainty rating. I sold puts on the name, giving me a ~8% return on the investment if the puts expire worthless. I’m happy to be put the stock at an effective buy price of $53, giving me a position in a low risk company with a wide economic moat.

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