Earnings season is entering its tail end. Most companies have beat on earnings expectations. However, some companies have beat on earnings but saw shares sell off. Why? Because of more cautious guidance.
When companies offer guidance, it sets expectations for the next few quarters. But many companies tend to be conservative with their guidance. So, when shares sell off following cautious guidance, the longer-term trend tends to be higher as earnings grow over time.
Recently, retailer Walmart (WMT) offered cautious guidance, as it often does. Consumers are spending less on goods and more on services. But Walmart also tends to gain market share when the economy is performing poorly, leaving it in a strong position in any environment.
That makes its latest earnings-report selloff a potential opportunity to buy the dip. The drop in prices sent shares back to levels last seen a month ago, and the selloff overshadowed Walmart’s earnings beat.
Action to take: Walmart has been growing earnings heavily over the past year, in large part from an increase in online sales. Investors may want to buy following the recent drop in shares to take advantage of the longer-term uptrend underway.
Walmart shares also pay a 0.8% dividend at current prices, and the retailer has a history of increasing its payout over time.
For traders, the April $105 calls, last trading for about $0.88, could see high-double-digit returns if shares look to recover part of their earnings-day selloff in the weeks ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.