Most of the important news in the financial markets goes over investors’ heads, only to wake up to new market price action and realize they should have not only paid attention but also acted upon the news that was released in the recent past. Today’s most important news—and implications—can be taken from the recent port strikes that started this week.
When the dominoes are laid out, investors may arrive at a few pain points of inflection. They all end up with worse inflation and a significant hit to the United States GDP, which affects the stock market. But, not all stocks in the S&P 500 are equal; while most in the consumer discretionary and consumer staples sectors stand to be negatively impacted by strikes, those in the transportation sector could now see added demand.
Major importers like Walmart (NYSE:WMT) and Target Corporation (NYSE:TGT) are now facing a potential threat of supply chain disruptions, with no signs of demand slowing down. This mix could create a major issue in terms of pricing and item availability but, conversely, make air freight a more attractive alternative, which is where FedEx (NYSE:FDX) comes into play.
Walmart's Value Proposition at Risk: What Investors Need to Know
There has to be a reason why Walmart's CEO recently sold some of the company's stock, up to $2.3 million. The timing of the transaction seems to answer it all. It was September 26th, just days before the port strikes were announced to begin.
Insiders are getting ahead because this could severely impact Walmart's ability to offer low-priced items to its consumer base. At the same time, bears are coming in to raid the stock. Walmart's short interest rose by as much as 3.8% over the past month, showing signs of trouble ahead.
If supply chains are disrupted, then Walmart's $3 billion worth of imports could see higher shipping and sourcing costs, leaving the consumer to pay for the passed-on expenses down the line. The warning signs didn't stop at company management and bearish traders; however, some institutional players had the same view in mind.
Anchor Investment Management also decided to trim its Walmart holdings by 6.5% as of September. This decision may have been made after considering Walmart stock's risk-to-reward profile, as it now trades at a high price-to-earnings (P/E) ratio of 42.3x, above the rest of the peer group.
The downside is now seemingly larger than the upside, and these new port strikes might be the catalyst for the rest of the market to see that as well.
Target's Smaller Scale Puts It at Risk
While Walmart has enough international reach to cushion some of the potential impacts, Target does not. Because of these increased risks to a brand already affected by inflationary pressures, some insiders also decided to trim some of their Target stock before the actual impact of these strikes is known.
Richard H. Gomez, a Target insider, sold as many as 6,348 shares as of September 27th. Getting rid of roughly $1 million worth of stock just days before the strikes began amplifies the concern that this event poses on the industry. Still, the bearish evidence didn’t stop there.
Over the past quarter, Target stock’s short interest has risen from roughly $1 billion to $2.2 billion today, which could corner some of the bulls who may attempt to get out during the potential volatility these strikes could create. As Walmart experienced, Target is also reporting some institutional names selling some of their holdings in the company.
First Financial Bank Trust decided to trim its holdings in Target stock by 3.3% during the past quarter, but it wasn’t alone in this decision. Park National (NYSE:PRK) also reduced its investments in Target stock by 7.5% as of October 2024.
FedEx Stock Could Rebound as Port Strikes Threaten Supply Chains
Now that regular freight schedules and supply chains are becoming disrupted through strikes, air transportation could become the next best alternative. With this potential tailwind behind it, FedEx stock may stand to close down the gap left behind after its recent earnings selloff.
Now that the stock trades at 85% of its 52-week high, the company has a double-digit opportunity to make a comeback. This is why analysts at J.P. Morgan Chase see a potential for FedEx stock to head higher toward their price target of $350, which calls for a net upside of 29.8% from where the stock trades today.
Knowing this could be the case, bearish traders decided to step off the gas when it came to selling short. FedEx stock’s short interest declined by over 8.5% in the past month, showing investors signs of this bearish capitulation. Replacing some of the beaten bears were a few institutional buyers as well.
Leading the most recent buys, Jacobs & Co. increased their holdings by 0.4% as of October 2024. This may not seem like much of a boost on a percentage basis. Still, it did bring the group’s net investment to $12.6 million today as a sign of institutional confidence for FedEx’s future.
This is, of course, a small drop compared to the $8.3 billion in institutional capital that has entered FedEx stock over the past 12 months.