By The ETF Professor
Not good. That is all we can say about Wal-Mart's (WMT) fourth-quarter earnings report. During midday trading Tuesday, the stock was just one of seven Dow components lower on the session, and the world's largest retailer was by far the worst loser of that group.
Sure, Warren Buffett loves Wal-Mart and the company is a reliable dividend payer. And yes, Arkansas-based Wal-Mart is now even trying to expand its massive reach into China. Those factoids are arguably pluses in favor of owning the stock.
On the other hand, Wal-Mart's China investment is no more than a drop in the bucket for a company of its size and the company is facing increased competition in the U.S. from dollar stores and warehouse rivals.
Is it just us, or are you starting to get the feeling that maybe the best way to play Wal-Mart currently is with an ETF? If so, try checking out these options:
Wal-Mart is this ETF's third-largest holding at 8.4%. That's enough to get you in the Wal-Mart game - sort of - but not so much that if Wal-Mart gets hammered XLP will suffer dramatically as well. XLP was down less than 0.2% Tuesday.
Market Vectors Retail ETF (RTH): This is one of the old HOLDRs that Van Eck acquired late last year, and many of those funds were known to have excessive weights to just one or two stocks. RTH is only mildly guilty of that offense as Wal-Mart accounts for just about 11% of the fund's weight.
However, RTH's biggest problem might just be that Wal-Mart and Amazon (AMZN) combined account for over 17% of the ETF's weight.
Consequently, those who are long those stocks might want to consider a short position in RTH or put options, especially when the ETF drops below $39.50.
ProShares UltraShort Consumer Services (SCC): Believe it or not, there is an inverse leveraged ETF for staples stocks, and it is the ProShares UltraShort Consumer Services.
Surprisingly, the bid/ask spread on SCC is not too bad, but be advised that the average daily volume is weak. This fund is a good idea for short-term hedges on long positions in Wal-Mart or ETFs like RTH and XLP.
In other words, Wal-Mart's doldrums do not necessarily portend bad news for XRT constituents. Our reservation about XRT right now is that the ETF is up over 25% since October, implying this is a major momentum trade at the moment.
Add this one to the list of buy on the dip candidates.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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