WMT: Blowout Quarter, DE: Agricultural Weakness

Walmart (WMT) just reported a blowout quarter. As you can see in the slide above, they now say full year revenue, adjusted operating income and EPS will all come in at the high end or above the guidance they gave just three months ago. The stock is currently +4.60% in the premarket to $62.58.

While the stock is a bit expensive at 26x-27x current year EPS guidance at its current price in the premarket, I’m not going to sell any of my large position. While short term traders may want to take some off, I continue to be a big WMT bull longer term because it provides the best value on consumer staples for the American consumer. If I’m right that the economy is headed for tough times, that will be even more salient for a larger number of consumers going forward. 12-month Price Target: $68.

A smaller Top Gun holding, John Deere (DE), also reported earnings earlier this morning. The agricultural market is in a lull and DE’s results reflect that. Revenue and EPS were both down 12% compared to a year ago. DE also lowered its full year net income guidance from $7.5 billion – $7.75 billion to $7 billion. Shares are currently down 5.56% in the premarket.

Nevertheless, I’m going to continue holding my position for the same reason I’ll continue to hold WMT. I believe agriculture is in a long term bullish cycle and DE stands to profit nicely from that. While short term things are in a lull, I have high confidence they will pick up again in the course of time and DE will do quite well longer term.

One of the things I have learned as a long term value investor in high quality businesses is not to overreact to the short term. You need to hold for a period of multiple years in order to allow high quality businesses to compound and produce superior returns. You can’t catch every wiggle. What you want to be focused on is the longer term trend. I’m confident in both WMT and DE for the long term despite the disparate reports out this morning.