Daily Gains Letter

Wal-Mart Stock Breaks 12-Year Consolidation; Why the Retail Sector Is Looking Up

By for Daily Gains Letter |

210313_DL_clarkThere is a resilience to this stock market, and regardless of the reason, it’s a play by institutional investors that first-quarter earnings season will be decent, as well as further earnings growth later this year.

While it’s tough to think about with the stock market at its highs, this market could go a lot higher yet, based on continuing stimulus from the Federal Reserve and a slight improvement in business conditions.

One of the best things available from the massive cash balances that large corporations have accumulated is increasing dividends. The stock market saw a lot of new dividend announcements last year, partially because of tax changes but also because companies can afford it.

This is a trend that is going to continue this year, and it’s good news for blue chip investors who are saving for retirement.

There are a lot of attractive blue chips that are growing their earnings and are not expensively priced in this stock market. Wal-Mart Stores, Inc. (NYSE/WMT) is five points below its recent high; it has a current dividend yield of 2.6% and a price-to-earnings (P/E) ratio of about 14.5. Wal-Mart’s longer-term stock chart is featured below:

dl_0321_image001Chart courtesy of www.StockCharts.com

Wal-Mart has been trading sideways for years, and its recent stock market breakout is meaningful. Again, Wal-Mart is not expensively priced, and Wall Street continues to nudge the company’s 2013 earnings estimates higher.

This upcoming earnings season is make or break for the stock market. Most corporations were coy with their forecasts last quarter, but they do this on purpose so as to show outperformance. But even with these conservative forecasts, most blue chips said that they expect the first quarter to show continued growth.

Regardless of the actions of the Federal Reserve and the massive increases to the U.S. money supply, the next major correction in the stock market should be an attractive buying opportunity.

A lot of companies on the Dow Jones Industrial Average increased their dividends last year. Most are fairly priced today, and last quarter, most said they expect business conditions to be solid this year. Wall Street estimates (which, of course, are just that—estimates) have being going up consistently for 2014, according to FactSet.

Of course, the stock market rally doesn’t trickle down to individual incomes. But stocks always follow earnings, and the market can be way ahead of Main Street before personal incomes improve.

I think more upside is in the making this year. It’s been an incredibly strong start. The stock market will likely sell off on good first-quarter earnings results, and it really needs a full-blown correction for its medium-term health.

Williams-Sonoma, Inc. (NYSE/WSM) just announced a 41% increase in its quarterly cash dividend and a new $750-million share buyback program. The company’s latest earnings results were excellent.

Not all industries are experiencing the same business conditions, but the numbers are now showing some growth, and the stock market can run a lot higher, betting on the future.

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