Check out part 2 of my interview with Consuelo Mack; Walmart is another example of a 'quality bubble'; I expect a 50-basis-point interest-rate cut tomorrow; The cooling labor market

1) About two decades ago, one of my first TV appearances was with business-news journalist Consuelo Mack on her program that airs nationally on PBS: WealthTrack.

As such, I was glad to join her again recently to talk about stocks, investing, and some of the many important lessons I've learned over the years.

I covered part 1 of our conversation – which you can watch here on the WealthTrack site – in my August 26 e-mail.

WealthTrack just aired the 26-minute part 2, which you can watch right here.

In it, I noted how the investing world has changed since my early days a quarter century ago (going from the hard work of finding information to drowning in it).

I also talked about the kind of opportunities I look for – using Meta Platforms (META) in late 2022, when it had fallen by more than 75%, as an example.

And I discussed how my college buddy Bill Ackman introduced me to value investing in the mid-1990s and, in particular, Warren Buffett and Charlie Munger, who have made a great impact on my life.

I also shared my favorite Buffett quote: "The chains of habit are too light to be felt until they are too heavy to be broken."

Echoing what I wrote in my June 20 e-mail, I talked about the strategy that offers a good chance of beating the S&P 500 Index over an extended period of time: holding, say, 10 stocks of high-quality businesses and then "going on vacation" for years.

Lastly, I discussed why I think the beaten-down shares of discount retailer Five Below (FIVE) are interesting.

Regular readers will recall that I discussed the stock at length in my July 22 and July 23 e-mails. I'll note that since July 23 through yesterday's close, shares of FIVE are up about 31% versus a roughly flat market – as you can see in this chart:

2) Five Below caught my attention once again because it appeared on this chart in Charlie Bilello's latest Week in Charts blog post, in which he highlighted that Walmart (WMT) just hit an all-time high... while Five Below and three other discount retailers – Dollar General (DG), Dollar Tree (DLTR), and Big Lots – are all down big this year:

My first reaction upon seeing this was that Walmart looks like another example of the "quality bubble" I've been warning my readers about, so I took a quick look at the stock.

To start, Walmart's 10-year stock chart is thing of beauty:

While that kind of chart attracts many investors, it makes me worry about overvaluation and complacency... so I took a quick look at Walmart's metrics.

The stock currently trades at about 1.1 times sales and 42 times trailing earnings per share. The latter is a nosebleed multiple – around the level from which stocks I've discussed recently like Starbucks (SBUX), Nike (NKE), and Lululemon Athletica (LULU) have fallen.

And while a price-to-sales (P/S) ratio of roughly 1.1 isn't excessive, this is the highest it has been for Walmart in 20 years, as you can see in this chart:

I don't need to do a deeper dive here – I'm not interested in the stock at these levels.

For a company to justify a rich multiple of 42 times earnings, it needs to grow at a rapid rate for many, many years – and that's simply not possible with Walmart, which, with $665 billion in trailing 12-month revenues, is the world's largest company by this metric.

3) Investors are eagerly awaiting the Federal Reserve's all-but-guaranteed rate cut tomorrow – the only question is whether it will cut by 25 or 50 basis points, which analysts have as a toss-up.

As I've long said in explaining why I've remained constructive on stocks despite widespread fears of a recession, either the economy will remain strong and therefore the Fed won't cut rates by much (if at all), which is good for stocks... or the economy will slow and therefore the Fed will cut rates, which is also good for stocks.

The latter appears to be happening, as I covered in my July 30 e-mail, so I expect a 50-basis-point cut.

Here are investors' longer-term expectations, courtesy of Bilello's latest Week in Charts again:

Market participants are now pricing more than 100 bps of rate cuts by the end of this year and another 125 bps of cuts by the end of next year. If they are correct, that would bring the Fed Funds Rate back down below 3%.

If you want to better understand the cooling labor market, Bilello has seven interesting charts in his latest Week in Charts post covering:

• Private sector job growth
• Job openings
• The spread between job openings and unemployed persons
• Employers' hiring plans
• Job cuts
• New jobs added
• Total jobs

Longtime readers know how much of a fan I am of Bilello's blog and charts – check it out!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.