What I'm Looking to Buy in the Face of a Walmart-Triggered Growth Stock Selloff
Suddenly, market players are worried about other 'growth' names with stratospheric P/Es compared to their growth rates. This is my game plan.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
A surprisingly weak Walmart WMT earnings report has triggered a broader market selloff, with high-flying growth stocks leading the downside.
Walmart has been trading like a growth stock for the last three years and has been rewarded a P/E ratio of more than 40, although its EPS growth is less than 15%. That valuation is even more aggressive than Apple AAPL, which has a P/E of 35 and single-digit growth.
Growth stocks can maintain high PE ratios as long as they beat estimates and keep raising guidance, but once they stumble and start to lower guidance, they are hit hard. That is what is happening to Walmart on Thursday as it trades down around 6%.
Suddenly, market players are worried about other "growth' names with stratospheric P/Es compared to their growth rates. Palantir Technologies PLTR, for example, has a P/E ratio of 273 and is expected to grow EPS by about 30% for each of the next two years. The stock is down about 10% on Thursday after losing 10% on Tuesday.
A proxy for high-growth stocks is the Innovator IBD 50 Fund ETF FFTY. It was down around 4% on Thursday.
Typically, when market participants become concerned about valuations like this, they dump ETFs, which weigh on many stocks that aren’t that expensive. That is what is happening Thursday. Some will bounce back fast after the pressure is relieved, but the problem is that the breach of technical levels can cause additional selling pressure.
I’m taking some hits Thursday, but I’m fairly comfortable with the valuations of most of my holdings. I’m inclined to add names such as Snowflake SNOW, GitLab GTLB, Nebius Group (NBIS), Redwire RDW and ClearPoint Neuro CLPT. However, I am only making incremental purchases and have plenty of room for additional buying as things develop.
The market action has been nervous and choppy for a while and action like this will help to shake things up.
At the time of publication, Rev Shark was long SNOW, GTLB, NBIS, RDW and CLPT.
