As the year-end approaches, both Christmas and New Year are coming soon. The holiday season means gatherings, celebrations, and anticipation for the new year, which could also be a good time for investors to look for investment opportunities.

"Santa Claus Rally" is one of the many seasonal effects in the US stock market. This phenomenon was first proposed in the 1970s, originally referring to the last 5 trading days of December and the first 2 trading days of the next year, when the US stock market typically experiences a wave of increases.

Over time, this time frame has been expanding, and the market has also begun to include the period after Thanksgiving. According to Wealth Management, the holiday shopping season is an important indicator of consumer sentiment and willingness to spend, which is crucial for retailers. Over the past five years, the average sales in the shopping seasons of November and December accounted for 19% of the total annual retail sales.

Due to increased consumer spending during the holiday season, investors typically hold a bullish attitude towards the retail industry. Retailers also usually conduct large-scale promotional activities during the Christmas period to attract consumers.

This week's Opportunity Express will take you to look at the giant in the retail industry— $Walmart(WMT.US)$ . As a "evergreen tree" in the US stock market, what factors are supporting the long bull market? Can the strong performance continue?

Unshaken by turbulent times.

The company's founder, Sam Walton, started his business with a hardware store. In 1962, he officially opened the first discount store under the name Walmart, which laid the foundation for the later global chain of Walmart supermarkets. In 1972, Walmart was listed on the NYSE and has weathered several ups and downs over more than fifty years, providing investors with remarkable returns.

Sam Walton introduced the concept of strict cost control and small profits but quick turnover into the US retail industry. On the procurement side, Walmart eliminated the middle link, directly purchased from factories, and vigorously developed its own brands. In terms of operations, accelerating the speed of logistics and cash turnover, many stores adopt warehouse-style decoration to save costs.

In addition to supermarkets, Walmart has also developed discount stores, community stores, and Sam's Club and other forms, gradually expanding its business from the USA to the Global, becoming a well-deserved retail giant.

In 2024, on the basis of a large volume, Walmart still achieved better-than-expected growth. In November, Walmart announced its latest financial report, with total revenue of $169.6 billion, a year-on-year increase of 5.5%; adjusted earnings per share were $0.58, a year-on-year increase of 13.7%. This is the 19th consecutive quarter that the company's revenue has exceeded expectations, and also the ninth consecutive quarter that profits have exceeded expectations.

The company's management stated that this shows that American consumers still have resilience and pointed out that consumer behavior has remained basically stable over the last four to six quarters. In the core US market, sales of daily department stores are turning positive growth, while the company's market share has also increased.

Jefferies Financial believes that Walmart will remain in a favorable position after the holiday season. In the previous quarter, Walmart's traffic in the US and Sam's Club was strong, with transaction volume increasing by 3.1% and 6.4% respectively, and this trend is expected to continue.

Holiday Express

Data from Facteus shows that Walmart achieved a 3% year-on-year growth in sales during this year's 'Black Friday' shopping festival. While its competitors such as Target and Best Buy experienced a decline in their sales.

Walmart stated that during the promotional period, the company offered large discounts, leading to record-high daily sales during Black Friday.

Royal Bank of Canada (RBC Capital) stated that in the environment of inflation, consumers are becoming increasingly picky. American consumers are paying more attention to value for money, more willing to choose own-brand products and delaying the purchase of big-ticket items. Walmart's advertising and membership revenue ratio is increasing day by day, already accounting for one-third of its operating profit. This structural shift allows Walmart to ensure competitive pricing while expanding profit margins, putting pressure on competitors.

Technical Analysis

Looking at the daily chart, the company's stock price entered an upward channel since the end of 2023. After the release of the latest quarterly earnings report, the stock price broke through the upper track of the channel, turning from a resistance line to a support line, and the market further developed on this basis.

Generally, when the price breaks above the upper channel line, it can be seen as a bullish signal. However, the market may give false breakout signals, so it may be wise to wait for a market pullback to confirm a valid breakthrough before entering the market.

The content of this chart is for reference only and does not constitute any investment advice. Past performance is not indicative of future results, and the market carries risks, so investment needs to be cautious.

In addition, if you are bullish on the overall performance of the Retail Trade industry in the USA, there are also Industry ETFs to choose from, with notable options like $SPDR S&P Retail ETF(XRT.US)$ $VanEck Retail ETF(RTH.US)$ 。Although both track the performance of the Retail Trade industry, their operational models are significantly different.

XRT allocates its component stocks in an equally weighted manner, with some smaller companies like GameStop ranking among the top ten holdings of the fund; while RTH's holdings are more concentrated, focusing on larger retail companies such as Walmart, Costco, Amazon, and other giants.

Related risks.

Overvaluation: As of the close of December 9th, Walmart's PE ratio was 38.77 times. Although it is at the industry average level, it is in the top 80% percentile over the past five years.

(Click path: Stock page -> Company -> Company Valuation)

The content of this chart is for reference only and does not constitute any investment advice.

Intensified Competition: As a traditional retailer, Walmart also faces competition from e-commerce companies. In addition to traditional players like Amazon, recent up-and-comers such as Shein, Temu, have also seen rapid growth in the US retail trade.

Changing Customer Preferences: In an environment of high inflation, customers prefer products that offer value for money, becoming more price-sensitive, which is beneficial to the company's performance. Changes in preferences could potentially impact the company's performance.

Risk disclosure: This content does not constitute a research report, is for reference only, and should not be used as a basis for any investment decisions. The information involved in this article is not a comprehensive description of the securities, markets, or developments described. Although the source of the information is considered reliable, the accuracy or completeness of the above content is not guaranteed. In addition, the accuracy of any statements, opinions, or forecasts provided in this article is not guaranteed.