Walmart Stock: Still Room for Major Growth

Posted On January 3, 2018 12:38 pm

Many retail stocks have staged a great recovery over the past few months. Some beaten-down names such as Macy’s (M) Foot Locker (FL) and Gap (GPS) rallied 30% during the final quarter of the year, and have started 2018 on a strong note.

While I still think those names, and some other traditional big box retailers like Koh’s (KSS) and Target (TGT) will face some challenging times ahead, it does seem that the predictions of death by Amazon (AMZN) were greatly exaggerated.

In fact, back in late 2016 I wrote about how we were entering a golden age of retail for operators that could make adjustments, investing in both technology and people to give consumers a great experience.

Last year I highlighted how Walmart was making all the right moves to not only compete, but beat Amazon.

At the moment, Walmart stock had just sold off to around $70 following a disappointing earnings report. But I noted the pieces were in place for a strong recovery for both sales and profits, once execution of acquisition of such as Jet.com and initiatives such as order online/pickup in store were implemented.

And while the stock ended up having another major sell-off last summer in the wake of the AMZN purchase of Whole Foods, Walmart stock is now approaching $100, an all-time high, and up some 41% since my original recommendation.

The chart is now in a very steady uptrend and shares are still reasonably valued at just 23x forward earnings.

I think Walmart stock still has room to run over the next few months heading into the next earnings report as investors embrace it as the best and most reasonable alternative to Amazon.

I’m keeping my approach very straightforward: buying a slightly in-the-money call with 90 days until expiration.

Specifically, I’m buying the March 95 calls for $5.50 per contract.  These options have over $4.50 of intrinsic value, provide a good leveraged upside potential with a limited risk.

 Related: This ETF is Down 99 Percent. Learn Why It’s Still Worth Your Time. 

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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