Eric Jhonsa
Technology Portfolio Manager at Dutch Asset
The 10-year Treasury's 5.25% yield makes roughly 3% earnings yields hard to accept for Walmart, Costco, Republic Services and Cintas, given their single-digit EPS growth. These low-growth safe havens have looked overpriced for a while, especially after the recent surge in yields. x.comÂ
Costco and Walmart's valuations have diverged from most US food and beverage stocks. Most of the group trades near 20-year valuation lows, while these two have entered a mini-bubble. x.comÂ
Walmart's 43.28x earnings multiple makes the stock impossible to buy for a long time. Its historical median is 31.13x, and even at 30x it would not be attractive. x.comÂ
Discount retailers are a built-in recession hedge because consumers trade down rather than stop spending. Walmart, Costco, TJX, and Dollar General should benefit as worsening economic conditions send more shoppers through their doors. x.comÂ
Long-dated Treasuries are the safe-haven trade again as money rotates into yield. With the 30-year paying over 5%, holding non-yielding assets is harder to justify; after the Fed held, yields fell across the curve and TLT rose 1%. x.comÂ
Walmart's valuation is too high for a grocery and household retailer. At about 36 times next year's earnings, it exceeds its five-year norm of 25 and the roughly 20 times this business should command; Target trades near 16 times. Stay away from Walmart here. x.comÂ
Walmart has the strongest fundamentals in retail, with $725B+ of revenue, exploding e-commerce and market-share gains while rivals bleed. It is a defensive cash-printing machine in a shaky economy, and analysts rate it a moderate buy with $140+ targets. x.comÂ
If AI, semiconductors and robotics deliver the economy's biggest productivity gains, they become a capital black hole that drains investment from other industries and lifts yields and real rates. Owning Walmart and Costco at 50x P/E or Coca-Cola at 25x would then make no sense, and few savers would accept a 5% Treasury yield while the AI economy booms. Investment demand jumps as savings fall, so the risk-free rate climbs and macro valuations compress. x.comÂ
Walmart's stock has compounded at 18% a year while its EPS grows less than 5%, which raises the question of how that return can be sustained. x.comÂ
Walmart may be setting up for a big bounce, with its pullback matching the pattern of its last two bottoms. The stock is down about 25% from its all-time high, as it was before both prior bottoms, which also showed RSI divergence. Its forward P/E has fallen from near 40 earlier this year to a more respectable 31, and it is holding just above the psychological $100 level near a prior breakout area. x.comÂ
Walmart is a great company at a terrible price, trading near 38 times forward earnings while growth slows. Revenue and EPS beat, yet US comparable sales growth slowed to 2.6%, the weakest in six years, and the stock fell. Even after another 10% drop, it is not worth buying. x.comÂ
