Walmart (WMT) has been in the news lately, and not for the right reasons.
A recent report indicates WMT is cutting orders it places with suppliers, and as a result, the Walmart stock price has tumbled 3%.
Walmart stock already was in trouble before this black eye, but given the recent headlines on WMT investors should seriously consider selling if they haven’t already.
WMT is dead money — even if the stock market continues to rally as a whole.
And if broader economic and market troubles hit Wall Street in the fourth quarter? Well, investors can expect Walmart stock to lead the race to the bottom.
WMT Stock is a Sell
In 2013, Walmart stock price performance is not exactly enviable. WMT is up about 8% year-to-date to lag the S&P 500′s roughly 18% gain, and after a strong start to the year Walmart stock is down about 4% from its April highs.
Blame Walmart earnings.
In the spring, Walmart stock took a hit as it saw its same-store sales slip for the first time in almost two years. Then WMT posted another same-store sales decline in August, which weighed on Walmart stock price even further.
The writing was already on the wall. And now we have news from BusinessWeek that orders are being slashed for the all-important holiday shopping season.
And bigger-picture, if consumer spending gets tight, we might see a movement to alternative discounters as we did during the Great Recession when Dollar General (DG) and Dollar Tree (DLTR), among others, did so well.
In short, this is as bad as it can get for a megacap retailer like Walmart as we approach a crucial earnings report for WMT in November and a critical holiday sales season immediately afterward.
Walmart Stock Price Won’t Crash, But Won’t Rise Either
Now don’t take this as a panic-filled warning that WMT stock is going to zero. That’s just plain silly considering Walmart is tracking more than $480 billion in annual revenue and is still growing profits modestly.
The retail giant also has a decent 2.5% dividend, so long-term investors in Walmart stock won’t be left completely out in the cold.
But just as the retail stock was a “bad” investment in a relative sense this year given its underperformance, WMT will remain a bad investment going forward because it has big headwinds against it that simply cannot be overcome.
We can debate whether Walmart stock price is contingent more on broader U.S. consumer trends than anything the company can specifically do to boost sales. I will concede that, on some level, WMT is a bellwether of the American economy because of its massive reach — particularly into rural and lower-class households across the country.
But whatever the cause for Walmart’s trouble, expect it to continue in late 2013 and into 2014. The dividend simply isn’t going to be enough of a sweetener to make holding WMT worthwhile.
Related Reading on WMT
- On WMT orders being slashed. (BusinessWeek)
- The previous Walmart earnings report from August. (Reuters)
- I said sell Walmart stock before its last earnings report, and WMT lost 5% since August. I also said the retailer’s best days were behind it in May when shares were topping. (The Slant)
- How Walmart stock price responds to big negative news items. (Bespoke)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.