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Walmart Misses Earnings, But Is a Buy on a Dip Anyway

Charles Sizemore, editor of the Sizemore Investment Letter, is a good friend and a great investor. But friends often disagree — as Charles and I do on Walmart (WMT) stock and Walmart earnings.

Me, I see Walmart as a retailer in trouble. As I wrote in advance of Walmart earnings, the excuses about a cold, wet spring and income tax checks don’t mask the underlying problem of weak consumer spending at home and big investment abroad that has yet to pay off substantially for shareholders.

Walmart earnings on Thursday validated these headwinds as sales missed, the outlook was slashed and the stock fell. And in the near- to medium-term, I see continued trouble for Walmart stock.

But Charles has a different take, and a long view that places Walmart stock at the top of the market when it comes to returning capital to shareholders via dividends and buybacks. Consider for a moment that its dividend has exploded from 22 cents a quarter in 2007 to an amazing 47 cents a quarter currently — a 113% increase in just five years!

And bigger picture, Charles says the risk posed by Walmart earnings declines and sales trouble isn’t necessarily a risk that just applies Walmart but the U.S. economy generally. He notes that Walmart makes up 10% of non-auto retail sales in the U.S. and that any downturn here is in fact a reflection of the macro picture — not poor management.

As such, that shouldn’t mean underperformance since broadly the market will be feeling pressure as a result. Retail stocks from Target (TGT) to Macy’s (M) to Gap (GPS) will feel the pain, as will other stocks that rely on consumers.

I admit Charles has a good point to be made about the long-term potential, and he admits that there’s no reason to run out tomorrow and buy Walmart given the short-term headwinds.

So maybe we are both right. Or both wrong.

Time will tell!

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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