Cheaper Gas + Housing Slump = Increased Profits at Wal-Mart

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

AHEAD OF THE TAPE: Pump Priming Wal-Mart

• Summary: The combination of cheaper prices at the pump and a softening housing market means that discount and low-end retailers like Wal-Mart (WMT) should continue to see an upswing in profits relative to high-end retailers. Gas prices are already down 14% since August highs and with wholesale prices decreased by nearly a third, pump prices should continue to plummet. This means that lower income families, who have minimal cushion between daily needs like gas vs. non-essential retail items, should now have some extra cash to unload at stores like Wal-Mart. The nation's wealthy, on the other hand, may have to continue to tighten the purse-strings with the housing slump in full swing -- they will less frequently visit upscale retailers and will have to settle for discounters. The market has begun to take notice with Wal-Mart shares up 8% since August lows. WMT shares are now also outperforming luxury retailers like Coach (COH), Tiffany (TIF) and Williams-Sonoma (WSM).
• Comment on related stocks/ETFs: We've seen a slew of bullishness surrounding discount retailers since pump prices began to fall last month. Neil Shanske makes the long case for BJ's while Hilary Kramer is bullish on both Costco and Target.

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