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Is Lousy Wal-Mart Forecast a Broad Sell Signal?

Thursday, 15 Nov 2012 | 1:30 PM ET

Considering bellwether Wal-Mart just issued disappointing guidance and said 'economic conditions continue to pressure customers' you should sell the space, right?

If you're a retail trader, that would probably be your knee-jerk reaction.

And it would stand to reason because Wal-Mart alone accounts for nearly 10 percent of nonautomotive retail spending in the U.S.

Weak results are typically interpreted as a sign that middle class shoppers are struggling, stretching every dollar until the next payday.

Time to Bail on Wal-Mart and Pickup Target?
Top traders Josh Brown, Mike Murphy and Stephanie Link talk retail trades after very different earnings reports from big box stalwarts Target and Wal-mart.

Conventional wisdom says run in the other direction.

But before you hit the sell button, there's something you should know - the pros see it differently. On CNBC's Fast Money Halftime Report, top traders Mike Murphy, founder and managing partner at Rosecliff Capital, and Josh Brown, author of The Reformed Broker blog, said there's more to consider.

First there are fundamentals. "If we go over the fiscal cliff discount retailers will do well," said Murphy.

Also Wal-Mart has been able to turn around its U.S. business by fixing the mistakes it made in merchandising and pricing. It's hammering its low price message again. It's also returned thousands of items to its shelves after a campaign to reduce clutter in its stores backfired.

"I still like Wal-Mart," agreed Brown.

Then there are the latest results from rival Target – which are far more impressive.

Target reported quarterly earnings on Thursday that surpassed analysts' expectations as the discount chain lured shoppers with a wider variety of food products and 5-percent discounts for its cardholders.

Results suggest shoppers continue to gravitate toward value.

Trader Stephanie Link also thinks the trade has legs.

However, she prefers playing the thesis with Dollar Tree, which she thinks presents greater value. "It's trading 13 times forward estimates well below the historical range," she said.

All told, the traders say don't let Wal-Mart results fool you. There are still places to play in the space.

Posted by CNBC's Lee Brodie

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Trader disclosure: On November 15, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders; Jon Najarian is long AAPL; Jon Najarian is long YHOO; Jon Najarian is long FB; Jon Najarian is long DLTR; Jon Najarian is long PETM; Jon Najarian is long LTD; Jon Najarian is long LRCX PUTS; Jon Najarian is long CME; Jon Najarian is long CBOE; Jon Najarian is long STSI; Jon Najarian is long GLUU; Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long SBUX; Stephanie Link is long DG; Stephanie Link is long AIG; Josh Brown is long AAPL; Josh Brown is long WFC; Josh Brown is long GDX; Josh Brown is long GLD; Josh Brown is long XLU; Josh Brown is long WMT; Josh Brown is long TGT; Mike Murphy is long AAPL; Mike Murphy is long TGT; Mike Murphy is long WFC


CNBC.com with wires.

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