The world's largest retailer, Wal-Mart (WMT - Free Report) , jumped nearly 4.5% to a two-year high in Tuesday’s trading session after it offered a strong guidance for fiscal 2019 and announced a new share buyback program. The move instilled bullishness, sparking a rally in the retail and overall consumer staples sector. It also led to the bulk of gains in the Dow Jones Industrial Average.
The mega retailer reiterated fiscal 2018 earnings per share guidance of $4.30-$4.40 and projected fiscal 2019 earnings per share growth of 5% year over year. The current Zacks Consensus Estimate calls for 5.25% growth for fiscal 2019.
Wal-Mart also projects overall sales to grow at least 3% for fiscal 2019, up from the estimated growth rate of 2.61% reflected by the current Zacks Consensus Estimate. The growth would be spurred by a 40% rise in online sales as the retailer ramps up competition with Amazon.com (AMZN - Free Report) . With e-commerce sales outstripping brick-and-mortar, Wal-Mart slashed its new store openings to less than 25 in the United States in fiscal 2019. This represents half the stores it intends to open in fiscal 2018. On the other hand, the company will add 1,000 more online grocery locations domestically (read: 6 Reasons to Dump Amazon & Related ETF Strategies).
Moreover, the world's biggest brick-and-mortar retailer would buy back $20 billion of its shares over the next two years.
Wal-Mart has seen positive earnings estimate revision of a couple of cents for both the current fiscal year and next year over the past three months to $4.38 and $4.61, respectively. In fact, this fiscal year’s earnings growth of 1.17% and revenue growth of 2.11% are much better than the negative industry average for earnings and positive 1.98% for revenue.
Currently, Wal-Mart has a Zacks Rank #2 (Buy) with a VGM Style Score of A and boasts a solid Zacks Industry Rank in the top 11%, indicating strength in the coming months, and compelling investors to stock WMT now.
If this isn’t enough, Wal-Mart has been on a stellar run this year, logging in gains of 21.7% compared with 3.4% returns for the industry (see: all Consumer Staples ETFs here).
ETFs to Bet On
Given this, we highlight five consumer ETFs having the largest allocation to this retail giant that are likely to see huge gains in the days ahead.
iShares Edge MSCI Multifactor Consumer Staples ETF (CNSF - Free Report)
This ETF debuted in the space more than a year ago and has attracted $2.5 million in its asset base. It trades in a meager volume of about 200 shares. The fund targets companies that have the potential to outperform the broad U.S. consumer staples sector and tracks the MSCI USA Consumer Staples Diversified Multiple-Factor Capped Index. Holding 28 stocks in its basket, Wal-Mart takes the second spot, accounting for 9% of the portfolio. In terms of industrial exposure, more than half of the portfolio is dominated by food beverage tobacco while food & staples retailing, and household and personal product take the remainder with a double-digit exposure each. CNSF charges 35 bps in fees per year and has a Zacks ETF Rank #2 (Buy).
First Trust Nasdaq Retail ETF (FTXD - Free Report)
The fund follows the Nasdaq US Smart Retail Index and holds 48 stocks in its basket. WMT occupies the third position in the basket with 8% of assets. While broadline retailers make up for a bigger chunk at 25.1%, specialty retailers, specialty retailers and apparel retailers round off the next three spots. FTXD has accumulated $2 million since its debut last September and trades in nearly 1,000 shares a day on average. Expense ratio comes in at 0.60%. FTXD has a Zacks ETF Rank #2 (read: Retail ETFs in Focus on Early Holiday Sales Forecast).
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
This fund tracks the MSCI USA IMI Consumer Staples Index, holding 101 stocks in its basket. Out of these, WMT takes the sixth spot with 6.3% share. The ETF is widely diversified across beverages, food and staples retailing, household products, food products, and tobacco. It has amassed $306.1 million in its asset base while trades in a moderate volume of around 54,000 shares a day on average. It charges 8 bps in annual fees from investors. The fund has a Zacks ETF Rank #2.
VanEck Vectors Retail ETF (RTH - Free Report)
This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. WMT occupies the third position with 6% allocation. The ETF has a certain tilt toward specialty retail, which accounts for one-third of the portfolio, closely followed by Internet & direct marketing retail (21%). The product has amassed $50.1 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 12,000 shares per day. RTH has a Zacks ETF Rank #2.
John Hancock Multifactor Consumer Staples ETF (JHMS - Free Report)
This product also targets the consumer staples sector emphasizing factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns by tracking the John Hancock Dimensional Consumer Staples Index. Holding 55 stocks in its basket, WMT takes the third spot at 5.7% share. Food products takes the largest share in terms of industrial exposure with 28.6% while beverages, food and staples retailing, and household products round off the next three spots. The fund has accumulated $17.9 million in AUM and trades in a paltry volume of under 1000 shares. It has a Zacks ETF Rank #3 (Hold).
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