Walmart has beaten Amazon. No, that’s not a joke. As incredulous as that may seem, let me explain.
Please click here for a chart comparing Walmart’s WMT stock to Amazon.com’s AMZN and the SPDR Dow Jones Industrial Average ETF DIA. Note the following:
• For the period shown on the chart, Amazon stock is up 15.55%, the Dow Jones Industrial Average is up 18.8% and Walmart stock is up 27.65%.
• Earlier this year, many investors were having difficulty understanding why Walmart stock was in our Model Portfolio and Amazon stock was not.
• The belief is deeply ingrained in investors that Amazon is so much better than Walmart. It has been taken for granted that Amazon stock would outperform the Dow, and Walmart stock would underperform the stock market.
• As the chart shows, in the earlier part of the year, Walmart stock and Amazon stock followed the expectations of the vast majority of investors as Amazon stock significantly outperformed Walmart and the Dow.
• Walmart reported earnings that were better than the consensus and the whisper numbers. Stocks move based on the difference between the reality and the whisper numbers.
• Walmart’s U.S. e-commerce sales grew by 41%. The growth is driven by, in part, strength in online grocery. Amazon owns Whole Foods but Walmart has an advantage when it comes to groceries.
• My reason for holding Walmart over Amazon in the Model Portfolio had nothing to do with traditional fundamental analysis. Based on traditional fundamental analysis, both Amazon and Walmart stocks are very expensive. If you have been around for a long time, you would have already observed that it is very difficult to make money in the stock market based on the widely followed concepts of fundamental analysis using ratios such as price/earnings, price/sales and the PEG ratio. Such ratios and data are widely available for free and the analysis is straightforward based on conventional fundamental analysis concepts; if this really worked, all investors would be rich.
• Walmart stock is expensive but not as expensive as Amazon’s.
• In our analysis, there is a clear path for Walmart to grow earnings by 20% in the next three to four years. That may not seem like a lot, but it is more than what is currently factored into the stock price.
• In my over 30 years in the markets, the only thing I have found that consistently works is getting ahead of the “change.” The premise behind the ZYX Change Method of investing is that most money is made with the lowest risk by successfully predicting change before the crowd. The change in this case is the difference between investors’ expectations and the reality for both Amazon and Walmart shares….Read more at MarketWatch.
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