The Safe Retail Trade That Comes With ‘Bonus’ Income
Stock prices have been volatile recently. While many analysts are blaming the omicron variant of the coronavirus, others are noting that inflation concerns can’t be ignored. Even Federal Reserve Chairman Jerome Powell finally acknowledged the reality of inflation.
Testifying before the Senate last Tuesday, according to The Wall Street Journal:
The chairman acknowledged that inflation has long since gone beyond the central bank’s 2% target.
He then said that some people define transitory to mean “short-lived.” But at the Fed, “we tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation.” He added that perhaps it’s time for the Fed to “retire” the word and “try to explain more clearly what we mean.
I was pleased to hear that the Fed will try to explain things more clearly from here on out. But I was dismayed to learn they have been redefining words to try to fool everyone. Inflation affects consumers, investors, and policymakers. The Fed’s assurance that it was transitory may have resulted in many bad decisions among consumers and investors. Policymakers may have been depending on the usual meaning of the word “transitory” as they developed trillions of dollars in spending plans.
Now we know that inflation will not be short-lived. I’m certain policymakers will still make at least some bad decisions, but we can plan accordingly as investors.
How I’m Trading Right Now
The truth is that as inflation continues to threaten the economy, some companies are likely to fare better than others. One of the companies that could be a winner is Walmart (NYSE: WMT).
WMT is the world’s largest traditional retailer, with revenue of more than $570 billion in the past 12 months. That placed it well ahead of Amazon, which posted revenue of about $458 billion, and other big box retailers.
Management intends to maintain its lead with Walmart+, a new effort offering the benefits of Amazon Prime.
Walmart+ costs $12.95 a month, or $98 a year. The program can be used at over 4,700 stores and benefits include free delivery on items, special pricing and free same-day delivery in many locations. The company is also looking at increasing its online presence. Walmart teamed up with e-commerce software giant Shopify to help third-party sellers on its marketplace, a direct challenge to Amazon, its rival of many years.
Walmart acquired a majority stake in Flipkart for about $15 billion in 2018 after a bidding war with Amazon. Flipkart is an Indian e-commerce company with a valuation of almost $50 billion. An IPO of Flipkart is expected early next year and that should provide a substantial cash infusion for Walmart.
As retailers struggled with inflation and supply chain issues this year, WMT has been a market laggard. But that should change.
Walmart is well positioned to prosper even with supply chains stretched. If their product is limited, manufacturers would most likely prefer to make large deliveries to Walmart rather than smaller deliveries to numerous customers. The manufacturers also know Walmart is known for being tough on suppliers and few are likely to risk souring relations with the retail giant.
That should allow Walmart to keep store shelves stocked. The company should also be able to maintain strong profit margins by forcing suppliers to minimize their price increases.
A Better Way To Trade…
From a technical perspective, WMT is a safe trade. The stock has been in a trading range since September 2020 and has firmly established support near current prices, as the monthly chart shows.
This indicates there is little downside risk in the stock, and fundamentals confirm that outlook. WMT is priced at about 21 times estimated earnings, a reasonable valuation in this market. The only issue I see for investors who are interested in income is the low dividend yield of about 1.5% — but we can fix that…
Thanks to the strategy we use over at Maximum Income, we can earn even more income while still potentially holding our shares for long-term upside.
Based on the details of our recent trade, we were able to earn an additional 2.3% on our capital. And because this trade will only last for about 50 days, if everything goes according to plan, we will be free to make another trade like this if we want. That works out to about 17% annualized.
Trading this way is the closest thing you can get to a “win-win” scenario when it comes to investing, and it could lead to hundreds (or thousands) in extra income every single month, like clockwork. Unfortunately, most investors have no idea this is even possible… Even though it’s simple and easy to learn. Go here to learn more now.