C = Catalyst for the Stock’s Movement
Right now, every stock on every exchange is facing the same catalyst – a deal or no deal on the so-called fiscal cliff. If a long-term grand bargain gets done, look for the mother of all stock market rallies. If the proverbial can ends up down the road, brace yourself for a plunge. Tax policy is a catalyst within the broader catalyst. Investors are bailing out in anticipation of rising capital gains tax rates. At the start of a new tax year, certainty could bring some of those investors home to the markets, adding fuel to the fire.
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E = Equity to Debt Ratio is Close to Zero
On its face, Wal-Mart’s debt position is less than impressive. A debt to equity ratio of 0.78 with total debt of $57.5 billion against $8.6 billion in cash is nothing to shout from the rooftops. Compared to one of the company’s slightly upscale competitors, Target (NYSE:TGT), Wal-Mart does not look so bad. Target’s debt to equity ratio is 1.16 with $18.6 billion in debt and only $1.5 billion total cash. But low-end retailer Dollar Tree (NYSE:DLTR) beats them both by a country mile. Dollar Tree has a debt to equity ratio of 0.17 with total debt of $264 million and a healthy total cash position of $222 million.
A = A-Level Management Runs the Company
Wal-Mart management has done what many iconic companies in history have failed to achieve. WMT has continued to grow in spite of the death of legendary founder and retailing genius Sam Walton. Management successfully dealt with the Mexican bribery scandal but now faces what could be the biggest challenge in the company’s storied history. Wal-Mart workers are expressing discontent with wages, hours, and working conditions through a non-union group called OUR Wal-Mart (Organization United for Respect at Wal-Mart). Company management has filed a complaint with the National Labor Relations Board (NLRB) claiming the group is a front with union backing. Watch this one closely as the implications are huge.
T = Technicals on the Stock Chart are Strong
Wal-Mart’s technicals were looking good going into the post-election panic selling. As of November 16, 2012, the stock price was 7.7 percent below its 20 Day Simple Moving Average; 8.38 percent below its 50 Day SMA; and still 1.35 percent above the 200 Day SMA. However, the Relative Strength Indicator has dropped below 20, indicating a strong signal the stock is currently oversold.