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You know the old saying: “What’s good for General Motors is good for America”?
Today, investors are phrasing things in a slightly different way. They’re asking: “As goes Wal-Mart Stores (WMT, Weiss Ratings: B), so goes the American economy?”
I say that because the giant retailer’s lousy second-quarter report has Wall Street concerned. The company managed to eke out a 0.6 percent year-over-year rise in profit, to $4.09 billion from $4.07 billion. That matched estimates for $1.21 on a per-share basis.
But sales inched up just 2.8 percent to $119.3 billion, and on a “same store” basis (meaning, only looking at stores that have been open at least a year) they were flat as a pancake. Overall traffic fell for the seventh quarter in a row.
|Wal-Mart’s lousy second-quarter report has Wall Street concerned|
On top of that, Wal-Mart slashed its full-year EPS forecast to a range of $4.90 to $5.15 from up to $5.45 previously. Wal-Mart not only cited lackluster sales, but also rising health care costs. The firm said its health care bill jumped $500 million from a year ago. That only underscores further how the Obamacare program and health care inflation in general is causing real problems for American businesses and consumers alike!
It’s not like Wal-Mart is alone, either. As I mentioned yesterday, the department store giant Macy’s (M, Weiss Ratings: B+) failed to live up to expectations in its most recent quarter. As a result, the company lowered its forecast for full-year, same-store sales growth forecast to 1.5 percent to 2 percent from a previous range of 2.5 percent to 3 percent. Overall U.S. retail sales also flat-lined last month.
So what’s the lesson here? While the job market is improving in the U.S., wages aren’t picking up at a rate that everyday Americans would like to see. What extra money they’re earning in their paychecks is being swallowed up by rising prices, leaving lower- and middle-income consumers with less ability to spend.
|“The solution sure as heck isn’t more easy money from the Federal Reserve.”|
The solution sure as heck isn’t more easy money from the Federal Reserve. That’s making the 1 percent happy as pigs at a trough, but doing jack squat for the other 99 percent. What we really need is less burdensome regulation, lower inflation, tax policies that encourage job creation, and more, not the kind of garbage that’s coming out of Washington!
So what do you think about Wal-Mart’s lousy numbers? Do they tell us something important about the U.S. economy? Or is it Wal-Mart’s own company-specific problems with keeping inventory on the shelves, its unattractive mega-stores, and more at fault here? How about wage growth — is it set to ramp up soon or not? Share your thoughts at the Money and Markets website!
|OUR READERS SPEAK|
Speaking of the website, there are lots of great comments on a variety of topics there right now.
Reader H. Craig B. chimed in on the “Fad Investing” piece from yesterday, asking the following: “Are social media, categorically, and stocks like Facebook (FB, Weiss Ratings: B-) to a large extent “Fad Stocks” too? Facebook has less than $1.00/share in earnings, is a multimillion-dollar company, and sports a hefty P/E ratio of about 80. It’s really hard to see this as an essential product or service people cannot live without in a recession, like Apple products currently are.”
Craig, I use Facebook in my daily life and find it a good way to keep intouch with family members and old friends. I like to see updates that I wouldn’t otherwise get by phone or email. But I agree that the stock is richly valued for what it offers. I’m not recommending it as a buy, but given its dominant market share, I don’t think it’s a great “short” either.
On the subject of losing money from fad stocks, Reader Jack T. has a simple bit of advice: “William O’Neil’s rule of ‘Never take more than a 7 percent loss prevents the kind of disaster you describe. Sure, you’ll sell stocks that drop 7 percent and more and then double or triple, but you’ll never suffer the losses of an Enron, Worldcom, Global Crossing, etc.”
Finally, with regards to fracking activity, Reader George C. said: “The national press is so anti-corporate and anti-fracking that if there was even an inkling of a real problem with what is going on all over the place, it would be all over the national news and the pro-environmental newspapers.
“Where is the beef? All generalities, no specifics. Fracking is going on in rural and semi-urban areas, while making people happy with no or low apparent problems.”
I tend to agree that the benefits of the domestic energy boom and fracking are substantial, George. Any type of energy extraction activity — domestic or international, at sea or on land — brings with it certain risks. The key is to minimize those as much as possible, and weigh those risks against the possible rewards!
If you’d like to weigh in on fracking, fad stocks, or anything else, remember: You just have to go here!
|OTHER DEVELOPMENTS OF THE DAY|
The fascinating story of Atlantic City’s decline as a gambling mecca continues to play out. AC and Las Vegas used to be the only game in town, so to speak, for gambling in the U.S. But with several adjoining states legalizing casinos, four major casinos in AC have either closed or announced they will do so soon, including the Revel this week. Read more here to understand the causes and consequences.
Shares of Berkshire Hathaway crossed a milestone today, trading above $200,000 for the first time ever. The investment vehicle of Warren Buffett crossed $100,000 for the first time almost eight years ago.
Rioting continues in Ferguson, Missouri, a St. Louis suburb thrown into turmoil after an unidentified police officer reportedly shot an unarmed, African-American teenager named Michael Brown. A Washington Post reporter was arrested, writing about it in this on-the-scene account.
First-time home buyers face several challenges these days. Higher down payments are just one of them, as Bloomberg notes here. That fits with my long-standing forecast that housing will NOT be a major driver of the economy for some time, and why I’m generally not in favor of investing in the sector’s stocks.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
P.S. The Weiss Million-Dollar Ratings Portfolio uses the Weiss Ratings model to hunt for safe, profitable stocks to invest in. Several stocks in the portfolio have double-digit percentage gains, including National Oilwell Varco Inc., which is up more than 28 percent since being added to the portfolio. To learn more about the service and see what other investment opportunities there are through the Ratings model, click here.