Inarguably, no other company right now has as much of a PR crisis than Walmart (NYSE:WMT). Bear in mind that the big-box retailer has never had a great image due to their aggressive business practices. But with the horrific El Paso mass shooting and the U.S.-China trade war, the Walmart stock price will face pressure.
However, the reason to avoid shares involves complex, intense and nuanced arguments.
Initially, the gut reaction for many investors is to dump WMT stock due to the El Paso shooting, which occurred inside a Walmart. However, locations of these types of tragedies are incredibly difficult to predict. Moreover, a majority of mass shootings are related to domestic or family violence. Therefore, any sweeping association between a retail brand and gun violence probabilities are suspect.
But what about subsequent protests against WMT? Will this not hurt the Walmart stock price? Responding to the tragedy, management took down displays advertising violent video games. However, the retailing giant will continue to sell firearms and ammunition. Naturally, many people saw this move as tone deaf. Recently, social media sites like Twitter (NYSE:TWTR) buzzed, with various users calling for a Walmart boycott.
Frankly, I’m shocked. After last year’s high school shooting in Parkland, Florida, Dick’s Sporting Goods (NYSE:DKS) announced measures to restrict gun sales. Since then, the company has removed firearms from hundreds of their stores.
You’d expect Walmart to do the same. But in the long run, such protests won’t matter for WMT stock. American outrage over various offenses simply doesn’t sustain very well.
But here’s the awful truth about Walmart stock: management simply can’t back away from their pro-gun stance.
Don’t Like Walmart Stock? Blame the Trade War
It’s easy to forget that amid the jarring massacre at El Paso, WMT stock has a much bigger headwind: the U.S.-China trade war.
As a big-box retailer, Walmart desperately needs cheap goods from China to sell to American customers. Unlike an innovative tech firm, WMT is one of the American companies that doesn’t have any leverage here. Chinese junk is their lifeblood.
This is the biggest reason why the Walmart stock price faces severe risks, and it’s not just the trade war. Rather, it’s the apparent trend: we see no evidence that this conflict will reach a resolution. The news stream indicates that neither side is willing to budge due to their respective nationalistic interests and sentiments.
Thus, with that overhang, I don’t think it makes sense to expose yourself needlessly to WMT stock.
Of course, what I like about the organization is that they’re not taking the trade war lying down. Reluctantly, they raised prices on many goods to protect their margins. But management has also attempted to ease wallet pain by procuring products from other countries. Further, they have the option of renegotiating cogs within their supply chain network.
Essentially, Walmart is leaving no stone unturned to sustain their business. As such, the El Paso shooting couldn’t have come at a worse time. The massacre and the brand will be tied to each other forever. More critically for Walmart stock, the public demands actions on both the governmental and corporate levels.
This is where it gets both awkward and untenable for WMT. More so than ever, Walmart needs those gun buyers to stock up on firearms and related (read: high margin) accessories. Killing gun sales will desperately hurt their financials.
Just ask Dick’s.
WMT Is Making the Only Play They Have
Here’s a dirty little secret that perhaps not many InvestorPlace readers know: Walmart is a great place – perhaps the best place – to buy popular, handgun-caliber ammo. They have the resources to buy in bulk and pass on the savings to the customer.
In fact, Walmart is such a popular place that their replenishment schedule is kept hidden. This gives all buyers a chance to purchase their ammo, and they will buy to the last bullet.
With such a robust consumer base, there’s no chance that Walmart will back off from their firearms business. Plus, if any rational hope exists to economically thrive during the trade war, it’ll probably be in the barrel of a gun.
Perhaps not surprisingly, firearm sales for concealable handguns spiked following the El Paso shooting. Many gun stores reported that people were understandably afraid of doing mundane tasks like shopping without protection. So, in an awkward irony, El Paso may drive the bull case for WMT stock.
But would I recommend taking action on that idea? For now, no. I’d still avoid Walmart stock but not because of the shooting. Unless a miracle happens in the trade war, retailers that depend on cheap goods are especially vulnerable to volatility.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
More From InvestorPlace
The post El Paso Dominates the News, but the Trade War Truly Hurts Walmart Stock appeared first on InvestorPlace.