VIDEO: Walmart Earnings Solidify Our Price Target Boost for This Holding

In today’s Daily Rundown video, Chris Versace discusses the morning’s renewed geopolitical tension and Walmart’s WMT earnings, explaining why those results solidify our recent Costco COST price target increase. 

Chris then shifts gears and previews what he’s expecting to hear from Qualcomm QCOM when it kicks off its 2024 Investor Day at 2 p.m. ET. Based on what’s shared at that meeting, it could be a catalyst for three Portfolio holdings. 

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here, Tuesday, November 19. We started this morning off with the market reacting to the latest geopolitical developments, including Russian President Putin softening the company's nuclear doctrine. As you've probably noticed, however, the market has since recovered from that knee jerk headline reaction, as I would argue, cooler thoughts have emerged with folks realizing this is likely another test by Putin to the West. Now, can we absolutely rule this out and dismiss this development? No, we certainly can't.

But we will gauge the response not only from the White House, but also its western allies, as well as potentially what could happen come January 20 when the Trump administration has its inauguration, and they, as I like to say, roll into town. So we will continue to monitor the developments here. We do think that this is a nice reminder about the importance of Lockheed Martin in the portfolio. We also think that ramping NATO spending as a percent of GDP is a nice one, and the need, of course, to rearm defensive stocks around the world. So we continue to Lockheed Martin shares.

But as it relates to this latest kick up of geopolitical tension, let's see how things play out over the next couple of days. Again, I'm really thinking this is just Russian President Putin kind of poking at the West one potentially last time. Also this morning, we had quarterly results from Walmart. And as we saw, much like Costco, Walmart is benefiting from a few things-- consumers trading down, consumers looking to stretch their dollars. It's also benefiting from e-commerce, and of course, consumers grappling with high grocery prices.

Clearly, Walmart, as the nation's largest grocer, benefited from the trade down effect. What was the data point that stood out most? Well, according to Walmart management team, 75% of their share gains came from consumers whose annual income is over $100,000. That tells you they're trading down historically.

The Walmart sweet spot has been around $75,000, $80,000 in terms of annual income. Now, if we parse Walmart's updated fiscal 2025 guidance for the 12 months that ended in January, it does expect the final quarter of the year will be strong. But as we pointed out in our Alert to you, even though Walmart might see its January quarter revenue up 9%, up 10% on a year-over-year basis, we have to remember that we can't read too much into that for the holiday shopping season. Very simply, other retailers-- Macy's, Nordstrom, Best Buy-- they do not have the grocery business that Walmart and Costco have.

In other words, given that November and December are chock full with year-end holidays, particularly dining events-- Thanksgiving, Christmas, New Year's, and again, other year-end holidays-- as I like to say, given their exposure to grocery, they will benefit from seasons' eatings. But when we think about Walmart and the impressive 5.3% US comp sales that it posted in its October quarter, well, when we line up Costco's adjusted US comp sales, it becomes very clear which of the two companies is taking an even bigger bite out of consumer wallets as they look to trade down and embrace savings on grocery and general merchandise.

So from our perspective, as we shared in our Alert to you, if you like what you saw in Walmart's results, then you really have to love Costco's position into the holiday season. And remember, folks, too, it's going to span even longer because over the next few quarters we will see the gradual rollover in Costco's membership fee at a higher level. So as more memberships renew, we should see a step function higher in its very high margin membership fee income. And remember, too, that new subscriptions, as Costco continues to expand its footprint, will also clock in at that higher rate.

So a number of reasons to continue to be long-term favorable on the shares of Costco. I will also say that what we saw in Walmart's report was also very confirming for why we recently lifted our Costco price target to $9.75. Now, those were events that happened this morning. We also had the October housing starts report, and I encourage you to take a look at that.

But now I want to shift gears and really talk about what's going to be happening this afternoon. At 2:00 PM Eastern, Qualcomm is going to kick off its 2024 Investor Day. Now coming out of Qualcomm's earnings, we talked about why we want to pay close attention to this event. But a quick reminder, the event is expected to focus on management's diversification efforts to move beyond the smartphone. That is one of its largest end markets today. But today, they will be talking about their IoT business, which houses the AIPC effort.

And remember, they have a very impressive number of platforms that should be matriculating into revenue. But also, the company will be focusing on its automotive business, which generally speaking, automotive semiconductors are not only a multiyear process, but once the programs are won, then they take time to ramp. So what will be interested most in Qualcomm's Investor Day will be if they show a multiyear revenue outlook for the IoT business and the automotive business. That will really, I think, help Wall Street wrap its head around Qualcomm's ability to unwind its reliance on the smartphone market.

And that would be great for how Wall Street thinks about valuing Qualcomm's shares. Now, just because I expect the event to focus on those two end markets doesn't mean that Qualcomm is going to ignore the smartphone market. So we'll be looking to see if it offers an updated outlook for the smartphone market for this year and next year. I do expect them to talk about the progress in the Android market, progress on AI adoption in the smartphone market, and how that could drive the upgrade cycle. But I also suspect we might hear some comments about their relationship with Apple.

And of course, the big overhang that we've talked about is the pending legal fight with ARM. When it comes to ARM, I really don't expect them to say anything new. I think that they've talked about the strength that they believe they have in the position, and we're going to have to wait and see what happens come December as that moves to a trial.

But when it comes to the smartphone market, depending on what we hear, it could be a catalyst for our Apple shares. It could also be a potential catalyst for our shares not only of not just Qualcomm, but also Universal Display as well. So what we're going to do is take stock of Qualcomm's Investor Day. We'll be updating our thinking about its prospects for the IoT and the automotive business, and kind of refreshing our thoughts on the smartphone market depending on what we learn.

And subject to all of that, we'll be keeping close watch on our shares of Qualcomm and Universal Display. As we update our thoughts, if it makes sense to take some action with those shares, well you what to do. Stay tuned with your emails, your Alerts, because if we make any moves with the portfolio, we want to make sure that you are right there with us. That is today's video, folks. So thanks for watching and we'll be back with you tomorrow.

At the time of publication, TheStreet Pro Portfolio was long COST and QCOM.