E-Commence Face-Off: Wal-Mart Vs. Amazon ETFs

The struggles seem to be over for Wal-Mart (WMT). According to Jim Cramer, Wal-Mart has proved the "theoretically impossible" point with a host of growth initiatives and posed itself as one of the close competitors of Amazon (AMZN). The net result is a 17.2% three-month gain for the world's largest retailer’s shares (as of Oct 12, 2017) against a 0.6% drop in the e-commerce behemoth’s shares (read: 6 Reasons to Dump Amazon & Related ETF Strategies).

Let’s delve a little deeper into their e-commerce war.

Behind Wal-Mart’s Recent Success

The retailer recently 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. Wal-Mart also expects overall sales to grow at least 3% for fiscal 2019, up from the estimated growth rate of 2.61% reflected by the then Zacks Consensus Estimate. This growth would be fueled by a 40% rise in online sales (read: 5 Consumer ETFs to Buy as Wal-Mart Surges).

Keeping the stupendous growth of online sales in mind, the company will add 1,000 more online grocery pickup locations domestically. Wal-Mart plans to launch Mobile Express Returns in November in order to make the process of returning items to stores easier. This is because around 30% of products bought online are returned against 9% purchased in stores. With this new application, Wal-Mart intends to get the process done in just 30 seconds.  

Inside Amazon’s Lost Sheen

First of all, Amazon had seen a two-year share price gain of about 82% (as of Oct 12, 2017) against 11% losses in SPDR S&P Retail ETF XRT. This shows that many of the Amazon-specific and online retailing-specific points are baked in the current valuation.

There are more to Amazon’s weakness. As per Moody’s, Amazon.com Inc. is doing great in terms of sales growth but not profitability. Amazon's Prime Membership is apparently exaggerated by some analysts. While some market watchers estimate Amazon's Prime membership base to be as high as 85 million, Moody's see this somewhere around 50 million.

Last but not the least, Moody’s noted that U.S. food sales total about $800 billion a year, of which Walmart accounts for about 25%. Moody’s sees that “even with Whole Foods in its basket, [Amazon’s] food sales still amount to less than $20 billion annually."

Inside the Technical War

The chart below shows that AMZN is way pricier than WMT. Plus, WMT is Buy-rated stock while Amazon is a Sell-rated one.

In short, along with many analysts, we too believe that Wal-Mart is making progress in online sales while Amazon is trying to grow bigger in brick-and-mortar retailing. But Amazon’s own valuation is its foe right now. However, the company’s long-term potential appears bright.

ETF Impact

Investors confused about which of the two stocks to pick as near-term or long-term plays, can always play the ETF or basket approach. A basket approach always minimizes one stock’s failure with other stock’s strength and keeps one’s portfolio more or less steady.

AMZN has exposure in the range of 12% to 17% to ETFs like VanEck Vectors Retail ETF RTH, Consumer Discretionary Select Sector SPDR Fund XLY and iShares US Consumer Services ETF IYC.

WMT is rich on iShares Edge MSCI Multifactor Consumer Staples ETF CNSF, First Trust Nasdaq Retail ETF FTXD and Fidelity MSCI Consumer Staples Index ETF FSTA.

And the three-month performance of these ETFs show that returns vary in the range of 0.75% to 3.66% unlike stark differences in the individual stock pick.

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