☕ Walmart: The four metrics that matter

Howdy! 👋 

The markets are red as I type.  

Perfect!  

MyPOV is simple. 

If you are not investing while the chips are down, you will not be ahead of the game when they're up. 

This is not shocking.  

There’s talk of a “surprise shift” at the Fed.  

Let me save you some time. 

Worrying about WWJPD (What Will J Pow Do) is a waste of your time. 

Instead focus on great companies that can succeed despite the Fed’s next follies. 

The real opportunity is still ahead of us. 

Here’s my playbook. 

1 – Walmart guidance “light” – not! 

Wall Street is focused on one thing this morning when it comes to Walmart: “Guidance came in light.” (Read) 

Hardly.  

• Revenue grew 5.6%. 
• Operating income grew 10.8%. 
• New $30B share repurchase authorization. 
• Dividend increase. 
• Store-fulfilled delivery climbed 50%. 

What stands out to me (and is far more interesting imho) are the following four metrics: 

• Advertising revenue surged 41%. 
• E-commerce in the US jumped 27%. 
• Global e-commerce rose 24%. 
• 23% of US sales are now e-commerce — a record.  

What the spreadsheet gang doesn’t get is that these are ALL high margin business areas. Every dollar spent now on digital capex means margins expand with future sales dollars. 

In fact, I think earnings could jump by 20-25% over the next two years alone. 

All while offering better downside protection – beta at 0.67 – which means that Walmart is roughly 33% less volatile than the S&P 500. 

Keith’s Investing Tip: The right low-beta stocks can lead to dramatically higher risk adjusted returns over time. 

I know what I’ll be doing.  

You? 

2 – Strike Iran? What the “Pentagon Pizza Index” says 

A few weeks ago, I pointed out that the so-called “Pentagon Pizza Index” – a measure of takeout pizza orders served up by pizza establishments within a mile of the Pentagon – was in overdrive.  

Now, it’s just high. 

Here’s a shot of the Pizza report for MacDill Air Force base, home of CENTCOM – which is related. 

Either way, traders are jacking oil ahead of time. 

West Texas Crude has risen to $66 a barrel while Brent Crude is now $71.73. 

Two ideas come to mind. 

First, oil itself is not likely to move all that much even though the go-fast crowd makes the case that it will. Iran accounts for 3-4% of global supplies but, critically, could potentially shut down the Strait of Hormuz which would impact 20% of global supplies. 

Geopolitical price spikes tend to fade quickly unless there is a physical impairment to the supply chain. So think key global suppliers that can mint money at $60 versus drillers that need $90. 

And second, money always flows towards capability and in this case that’s defense companies which will stand strong in an era where stuff like this creates the need to do so. 

And if you’re waiting for “confirmation” in one direction or another? 

Good luck with that. 

Today’s markets move so quickly that getting there well ahead of time is what you want to do and the OBA Family has done.  

For instance, a fave oil producer has returned 137.68% versus the S&P 500 which has turned in 88.97% over the past 5 years. Plus, it has a global footprint, a strong True Shareholder Yield (TSY), decades of dividend increases, and a fortress-like, super-efficient balance sheet relative to peers.  

The go-fast crowd will always trade pizza. 

Smart investors will trade probabilities. 

Knowing the difference can make all the difference AND result in a smoother ride, too. 

If you know how to find companies like the ones I’m describing, excellent. It’ll do your portfolio a whole lot of good if you stick with ‘em.  And if you’d like some help, you may enjoy One Bar Ahead®. 

3 – Sam Altman just agreed with me 

OpenAI CEO Sam Altman has confirmed what we’ve been talking about for years. (Read) 

1. Chinese tech progress is “remarkable” and moving “amazingly fast.” 
    
2. The AI race between the U.S. and China is very real. 

Ya think??!! 

But, I’ll take it. 

Now, I see a lot of investors dismissing China and I get why they would. 

Those who have visited mainland China and spent any time there whatsoever have a very different opinion. 

I put it this way. 

The Dragon is coming to dinner and the only question you need to answer is whether you’re at the table or on the menu. 

Keith’s Investing Tip: Invest because of China, not necessarily in China except under very specific circumstances. 

OBAers, stick to the plan and the companies at hand. 

4 – Zuck’s not squirming… yet 

Meta CEO Mark “El Zucko” Zuckerberg took the stand this week in what many are calling the social media industry’s “Big Tobacco” trial — a case centered on whether Instagram was deliberately designed in ways that harmed young users. (Read) 

Zuck pushed back, saying engagement wasn’t a company goal and that Meta ultimately erred on the side of “free expression” when it lifted certain beauty-filter bans. 

He also pointed to Apple and Google as better positioned to handle age verification, subtly shifting some responsibility toward the app-store gatekeepers. 

I call bull____. 

Zuck’s legal team will do everything they can to position Meta as just a platform but even the slightest whiff of accountability could trigger a massive cascade in Meta shares. 

MyPOV: Social media companies, Meta in particular, have never been held accountable for the mess they foisted upon the world, and this case could open Pandora’s box so that finally happens. 

Meanwhile, speculative puts could be in order the moment a lawyer appears to gain ground against Team Meta. 

Investors – and as much as I hate saying this – could use the same corresponding dip to buy shares for no other reason than that Wall Street has a vested interest in defending the stock. 

Btw, Snap and TikTok have already settled. Meta hasn’t. 

Just sayin’ 🤷‍ 

5 – Revenge of the dads 

I could only grin this morning when I read that the company’s “dad shoes” have driven a 19% increase in sales while Nike is still busy flexing in the mirror. (Read) 

Here’s the real investing input. 

There are now more 40-50-60-something knees, more school drop-offs and more people who care about their arch support than Air Jordans. 

New Balance simply – and correctly – figured out something that Nike’s forgotten – the wallet pays and the arrogant athlete swagger increasingly not so much. 

I specifically warned investors on 15 May, 2021, that “Owning Nike shares at this point could be riskier than many think.” (See #2) 

Shares were trading at ~$135.93 back then and are now ~$64.49, a decline of ~52.56%. 

Seems I might have been on to something. 

More recently, I suggested that Nike’s direct selling strategy would likely backfire because it would open shelf space for New Balance, Brooks, and Deckers. Even On… all of which sell variations of – ta da – “dad shoes.” 

Trade Idea: Continue to avoid Nike. It’s just not worth it, especially when there’s an estimated $1-2 trillion in big tech, margin enhancing, revenue producing spending going on.  

Keith’s Investing Tip: Sometimes what you don’t buy is more important than what you do. 

Bottom Line 

People get very upset when the markets get rocky. 

Here’s the thing. 

You've already lost if you let the fear of losses define you.   

Mistakes are tuition.   

Learn! 

Oh, and invest in optimism. 

Now and as always, let’s MAKE it a great day. 

You got this – I promise! 

Keith 😀