Market Overview

Attention Wal-Mart Shoppers: Maybe An ETF Is A Better Idea (XRT, XLP, RTH)


Not good. That's all we can say about Wal-Mart's (NYSE: WMT) fourth-quarter earnings report. In midday trading, the stock is just one of seven Dow components lower on the session and the world's largest retail is by far the worst loser of that group.

Sure, Warren Buffett loves Wal-Mart and the company is a reliable dividend payer. Arkansas-based Wal-Mart is even trying to expand its massive reach into China. Those factoids are arguably pluses in favor of owning the stock.

On the other hand, Wal-Mart's China investment is no more than a drop in the bucket for a company of this size and the company is facing increased competition in the U.S. from dollar stores and warehouse rivals. Hmmm, are you getting the feeling that maybe the best way to play Wal-Mart is with an ETF? We agree. Checkout these options.

Consumer Staples Select Sector SPDR (NYSE: XLP) We've sure been talking about the Consumer Staples Select Sector SPDR a lot lately considering risk on has been back in style this year. Wal-Mart is this ETF's third-largest holding at 8.4%. That's enough to get you in the Wal-Mart game, sort of, but not so much than when Wal-Mart is getting hammered like it is today that XLP suffers dramatically as well. XLP isn't even down 0.2% today.

Market Vectors Retail ETF (NYSE: RTH) This is one of the old HOLDRs that Van Eck acquired late last year and many of those funds were known excessive weights to just one or two stocks. RTH is only mildly guilty of that offense as Wal-Mart accounts for just about 11% of the fund's weight. That's not RTH's biggest problem. RTH's biggest problem might just be that Wal-Mart and Amazon combine for over 17% of the ETF's weight.

In other words, those that are long those stocks might want to consider a short position in RTH or put options, especially if the ETF drops below $39.50.

ProShares UltraShort Consumer Services (NYSE: SCC) Believe it or not, there is an inverse leveraged ETF for staples stocks and it's the ProShares UltraShort Consumer Services. Surprisingly, the bid/ask spread on SCC isn't too bad, but be advised average daily volume is weak. This fund is a good idea for short-term hedges on long position in Wal-Mart or ETFs like RTH and XLP.

SPDR S&P Retail ETF (NYSE: XRT) There's a lot of utility with this ETF but one of the better reasons to get to know XRT is because it's home to higher-beta retail fare than Wal-Mart. In other words, Wal-Mart's doldrums don't necessarily portend bad news for XRT constituents. Our reservation about XRT right now is that the ETF is up almost 34% since October, implying this is a major momentum trade at the moment. Add this one to the list of buy on the dip candidates.

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