• Walmart might be lacking the shine of AI stocks, but it's outlook is bright

• Its AI initiatives could be a blueprint for the retail sector

• The stock is the winner within the Dow-Jones; next target at $82.40

 

 Corporate taxes come under the spotlight

The US presidential debate between Donald Trump and Kamala Harris boosted bets of a Democratic win, with investors growing concerned about potential tax increases on corporate profits and capital gains.

Seeking ways to cap the rising federal debt trajectory, Harris called for a higher corporate tax rate of 28% from the current 21% on large corporations and a hike in the capital gains tax to a similar level for wealthy Americans earnings more than $1 million annually. This is a smaller increase than Biden’s proposal of 39.6% for the latter, but it’s higher than Trump’s pledge for a reduction to 15% in both taxes.

Of course, nothing is agreed until a congressional approval is given; rejections occurred in the past, even when Democrats dominated both the Senate and the House. Nevertheless, the news had only a temporary negative reaction, with US stock indices bouncing back soon afterwards as the scenario of a double rate cut by the Fed became again more likely.

 

Walmart's stock shrugs off recession fears; remains attractive

Yet at an individual level, not all big companies suffered. Despite AI stocks trembling, Walmart Inc, the largest US supermarket chain, continued to unlock all-time highs. It has been having an outstanding year so far, outperforming its Dow Jones counterparts. Strikingly, the stock was surprisingly inelastic to recession fears despite its sensitivity to household spending, extending its record rally to $81.00. On the other hand, its peers such as Tiger and GAP have been in a downtrend, trimming more than half of their 2024 gains, while discount stores such as Dollar Tree have been in the doldrums too.

Recommendation from IBES analysts is a "buy" with a wide margin, even though the stock is considered overvalued with a forward 12-month P/E ratio of 30.5x versus 25.3x in the food and drug industry and 18x in consumer cyclicals. It’s even trading at a hefty premium compared to the S&P 500’s and Nasdaq 100’s averages of 20.7x and 26.1x, respectively.

Interestingly, analysts have upgraded their target price for the stock to a high of $90 following the largest stock split of 3-to-1 and a decent financial year of upbeat earnings. So, what makes Walmart more special than others?

Why are investors bullish about Walmart?

Prices have been leveling off in the retail sector amid signs of demand weakness after a period of continued price increases and strengthening jobs and wage growth. Groceries account for about 60% of Walmart’s revenue as of 2023, though Walmart raised its forecast for full year sales and adjusted operating income.

Its mix of products including apparel, home furnishings, and electronics serves low to high-income consumers and therefore compensates for its low-margin grocery business. Maintaining price leadership is undoubtedly an advantage in the competitive retail sector, but it may not be very effective in attracting new investors when AI technology is what excites the most. It is said that you cannot teach an old dog new tricks, but Walmart has proved that it can sneak into the tech world and create new channels to boost its growth prospects.

In addition to its e-commerce business, Walmart has incorporated AI technology to improve its customer experience and manage its customer catalog and inventory more effectively. Amazon is not considered a competitor anymore as the two giants have blended their physical and digital services with Amazon’s automation. Specifically, Walmart is pushing boundaries in the retail sector by developing AI projects such as product recognition, AR applications, voice assistants and virtual try-ons. Therefore, although its returns are not as astonishing as those for semiconductors, the company's stock might stay on investors’ radar in the foreseeable future.

 

Technical levels to watch

As regards its technical outlook, Walmart’s stock could flatline after a five-day rally to an all-time high of $81.00 as signs of an overbought market are evident. The $79.20 region could act as initial support ahead of the 23.6% Fibonacci retracement of the August-September uptrend at $77.70. The 20-day simple moving average (SMA) at $76.85 is nearby. Hence, a drop below it could shift the spotlight to the 38.2% Fibonacci of $75.60. Then, the 50% Fibonacci of $73.93 could be the next target.

Should the pair stretch its record rally, the next obstacle could be found around $82.40, and then near $85.00