Jeff Clark's Market Minute

Don’t Buy Walmart Until You Read This

America’s biggest retailer got hit with a sledgehammer yesterday.

Walmart Inc. (WMT) tanked after the company reported earnings that didn’t measure up to Wall Street’s expectations. The stock fell 10% – its biggest one-day decline in almost seven years. And it prompted a lot of bargain-hunting talking heads to say something like, “Now is a good time to buy WMT.”

I disagree… at least for the short term.

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At yesterday’s closing price of $94.11 per share, WMT still trades at 25 times earnings and offers a dividend yield of 2.17%. That’s still relatively expensive compared to Walmart’s historic price-to-earnings (P/E) ratio – about 22 – and dividend yield of 2.6%. So it’s not exactly a bargain price.

I get it though. I understand the attraction to being able to buy one of America’s iconic stocks at a 10% discount to where it was trading just one day ago. But, here’s the thing…

Stocks that get hit over the head by a sledgehammer might stumble back to their feet and take a step or two in a higher direction… but they’ll almost always fall over again and make a lower low. That’s often when investors get a better buying opportunity.

Here’s an example of what I mean. Take a look at this chart of Target (TGT) over the past year…

TGT got hit with three sledgehammers last year. Each one was a poor reaction to an earnings report. And each one led to a good buying opportunity in the stock – but not right away.

Following each sharp selloff in TGT shares, the stock gained its footing and stumbled a bit higher. But each time, the stock came back down and hit a lower low before mounting a more significant rally.

My Delta Report subscribers traded TGT based on this sledgehammer pattern all three times last year. We recorded gains of 8.2% in nine days, 12.1% in 29 days, and 136% in four days.

I expect we’ll have a similar opportunity to earn big gains in WMT as a similar pattern plays out in the stock. But we’re not buying it yet.

Any short-term bounce in WMT from here is likely to be followed by another decline to a lower low. That’s when we’ll be looking to buy WMT.

Best regards and good trading,

Jeff Clark

P.S. The “sledgehammer pattern” I showed you today is just one of many methods we use in the Delta Report to lock in low-risk, fast, outsized gains each week.

We don’t follow the talking-head playbook… We look at the markets rationally and find the most profitable trade for each week’s conditions.

To learn more about a Delta Report subscription, click here

Reader Mailbag

Today, a reader responds to yesterday’s essay, “The Kiss of Death”…

The “crash of 2008” is now a talking point within our collective market memory, but I hardly ever hear any reference to the real smash-up that ensued in the winter of 2009.

Going mostly to cash after suffering only the beginnings of the big drop in the fall of 2008, by the first of the New Year I was ready to go all in for the inevitable rebound, only to be stopped out of everything by February. At that point, the wind was out of my sails, and I took a multi-year break from the markets – a mistake from which I still haven’t recovered.

Wall Street seems to know just how much everyone can, and can’t, stomach – and when!

– Mark

Do you think it’s time to buy into this correction? Or is there more downside to come?

Send in your response – as well as any trading stories, questions, and suggestions – right here.

Jeff’s intuitive feel for short term market swings and his strong protective discipline have allowed me to lock in thousands of dollars in gains where I might otherwise have just ridden the markets up and down .”  -Chris, a reader and “seasoned investment advisor” from Seattle

Jeff -- your picks and analysis have been nothing short of amazing. I have traded the market for many years but I must admit, I have NEVER seen something this good.” - Mike H.

In only 2 weeks of using the service I’ve booked over $10K in profits. Needless to say I’ve paid for my membership.” - Tony J.

I started following Delta Direct about 3 weeks ago… I bought a small investment from one afternoon to the next morning. About 11AM I got out and made 8K in less than 24 hours.” – D. Tilghman