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5 ETFs to Gain From Walmart Strength Post Q2 Results

Sweta Killa

Walmart WMT spread optimism in the retail space by reporting robust second-quarter fiscal 2020 results. The mega retailer topped earnings estimates but fell shy of the consensus mark for revenues. Additionally, the company raised its full-year forecast, allaying all the negative sentiments around consumer demand in the wake of tariffs on imports from China.

Earnings per share came in at $1.27, beating the Zacks Consensus Estimate by 5 cents. However, the bottom line declined from the year-ago figure of $1.29. Revenues inched up 1.8% year over year to $130.4 billion but fell short of the estimated $130.5 billion. U.S. same-store sales grew 2.8% in the quarter and 7.3% on a two-year stacked basis, marking the strongest comp growth in more than 10 years (read: Americans' Confidence at About 18-Year High: Bet on These ETFs).

E-commerce sales jumped 37% driven by strong growth in online grocery. Walmart now surpassed 1,100 grocery delivery locations and has more than 2,700 pickup locations. Its NextDay delivery service from Walmart.com now covers about 75% of the U.S. population.

The brick-and-mortar retailer lifted its fiscal 2020 view. It now expects U.S. same-store sales to grow at the upper end of its previously stated guidance range of 2.5-3%, and e-commerce sales is projected to rise 35%. Adjusted earnings per share are expected to range between a slight decrease and a slight increase compared with fiscal 2019 earnings.

Market Impact

Based on strong results, shares of WMT jumped more than 6% on the day — its biggest one-day gain in nearly two years. The stock also crushed its average daily volume figures as nearly 19.25 million shares moved hands compared with 6 million on average. Walmart currently has a Zacks Rank #2 (Buy) and a VGM Score of C. Further, it belongs to a top-ranked Zacks industry (top 22%), suggesting strong upside in the coming months.

Consequently, ETFs having the highest allocation to the world's largest brick-and-mortar retailer rose following the results. Below, we have highlighted six of them:

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, WMT occupies the third position in the basket with 9.5% share. The product has amassed $60.3 million in its asset base and charges 35 basis points (bps) in annual fees. Volume is light as it exchanges nearly 10,000 shares per day. RTH gained 0.7% post WMT results and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Trump Brings Holiday Cheer for Consumer & Tech Stocks & ETFs).

Consumer Staples Select Sector SPDR Fund XLP

This is the most popular consumer staples ETF with AUM of $12.7 billion and follows the Consumer Staples Select Sector Index. The fund charges 13 bps in fees per year from investors and trades in heavy volume of nearly 13.1 million shares a day. In total, the fund holds about 33 securities in its basket with WMT taking the fourth spot with 8.3%. From a sector perspective, beverages take the largest share at 26.2% while household products, food and staples retailing, and food products account for a double-digit allocation each. XLP gained 1.5% on the day and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Consumer Staples Index ETF FSTA

This fund tracks the MSCI USA IMI Consumer Staples Index, holding 89 stocks in its basket. Out of these, WMT takes the fourth spot with 8% share. The ETF is widely diversified across beverages, household products, food and staples retailing, food products, and tobacco. It has amassed $569.5 million in its asset base, while trading in moderate volume of around 113,000 shares a day on average. It charges 8 bps in annual fees from investors and added 0.7% following WMT results. The product has a Zacks ETF Rank #3 with a Medium risk outlook (read: Consumer Staples ETFs Beating Discretionary ETFs: Why?).

Vanguard Consumer Staples ETF VDC

This fund manages a $5.1 billion asset base and has exposure to a basket of 92 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. It charges a fee of 10 bps per year and trades in a good volume of around 143,000 shares per day on average. Here, WMT occupies the fourth position in the basket with 7.4% allocation. The product is widely spread across household products, soft drinks, packaged foods & meat, hypermarkets & super centers, and tobacco that make up for a double-digit allocation each. The fund was up 1.4% on the day and has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Evolved U.S. Discretionary Spending ETF IEDI

This is an actively-managed ETF that employs data science techniques to identify companies with exposure to the discretionary spending sector. Holding 211 stocks in its basket, WMT occupies the third position with 6.2% share. The fund has accumulated $5.6 million in its asset base and charges 18 bps in fees per year. Volume is paltry as it exchanges 1,000 shares a day on average. IEDI gained 0.2% following WMT results.

John Hancock Multifactor Consumer Staples ETF JHMS

This product targets the consumer staples sector by tracking the John Hancock Dimensional Consumer Staples Index. It takes into account factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns. Holding 45 stocks in its basket, WMT takes the fourth spot with 6.1% share. Food products takes the largest share in terms of industrial exposure with 33% while food and staples retailing, beverages, and household products round off the next three spots. The fund has accumulated $28.5 million in AUM and trades in a paltry volume of about 5,000 shares. It charges 0.40% in annual fees and added 1.4% on the day. The product has a Zacks ETF Rank #4 (Sell) (see: all Consumer Staples ETFs here).

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