Talking Numbers

These two charts say Wal-Mart is a buy

Talking Numbers

Wal-Mart's Sam's Club is sacking 2,300 employees. But, even in a changing retail environment, is Wal-Mart's stock a buy?

Remember when Wal-Mart was going to take over the world and destroy every retail store in America? Well, that may be on hold for now.

The world's largest retailer announced recently that its Sam's Club was going to get rid of 2,300 workers – about 2% of the membership club's employees – from its payrolls. Sam's Club is responsible for one out of every eight dollars of revenue for Wal-Mart.

This comes after the most recent holiday season made at least one thing clear: online sales are changing the face of retail in America. And, that could be a threat to the likes of Wal-Mart, which caters to price-sensitive consumers.

(Read more: Wal-Mart cuts 2,300 jobs at Sam's Club)

To be sure, retail sales in the US were $5.09 trillion in 2013 up 4.2% compared to 2012. However, online sales are growing at a much fast 10.3% rate and are now at $450 billion. And, a lot of brick-and-mortar sales came about through deep discounts – particularly during the holidays – to compete with online sales.

Portfolio manager John Stephenson of First Asset Investment Management says Wal-Mart has a lot to worry about.

"The company is struggling with so many headwinds," says Stephenson. "Last quarter, same-store sales were down 0.3%."

Stephenson cites weaker sales in Mexico, the UK, and China among the reasons to worry about Wal-Mart.

(Read: Hudson's Bay to debut Saks in Canada, sell Toronto flagship)

"And then food, which is 55% of their sales," says Stephenson. "Prices are lower. Corn prices have fallen 40% (over the past year), which is normally a good thing for consumers. But, they're not able to pass through any cost increases. So, again, the revenue line is going to be weak. I'm not expecting much for Wal-Mart."

While Stephenson doesn't expect much from Wal-Mart, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes otherwise.

"Admittedly, it's not all rainbows and unicorns for the fundamentals of Wal-Mart," says Ross. "But I still see enough in the technicals to recommend holding this stock but buying it here on this pullback."

Ross notes in one chart that Wal-Mart traded within a range of $72 to $79 for much of the last year. After a false breakout above $80 at the start of December, the stock dropped to its current level around $74 and is now sitting on a support line, according to Ross. Using a long-term chart, he shows why he believes Wal-Mart is a buying opportunity, especially in light of the stock's breakout in the last two years above $70.

To see Ross’ two charts on Wal-Mart and for more of Stephenson on the company’s fundamentals, watch the video above.

 

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