Billytickets shares his view about Wal-Mart, and why he thinks the stock has very low downside risk.
Recently Wal-Mart reported disappointing sales and the stock dropped down to the high $42's now settling in the upper $43 level. Is this former high flier which was over $70 before the bubble burst ready to rebound? Billytickets will try and help you make your decision.
At first glance many are predicting Wal-Mart's demise and with the recession word out there many believe that the retail sector which Billytickets has been loathe to invest in is for hard times ahead. If you look at valueline which jumps out at you is that valueline is still predicting 10% annual growth for WMT. If you read the 3 to 5 year forecast at the current price ratio it is 12-16% annual price appreciation and adding in the over 2% dividend yield (that was just raised 31%)
The stock has recently been under pressure since the death of Helen Walton who owns a very large chunk of stock that will more than likely be part of a charitable organization. Warren Buffett who knows a few things about stocks has a cost basis which is considerably higher than the current price. The huge 15 billion dollar buyback is proof that management has confidence in its core business. There was a rumor last week that a Chinese fund is interested in purchasing an 8 billion dollars worth of WMT stock in the open market
Is the information listed in the 2 paragraphs above the main reason Billytickets is buying the stock and recommends its purchase at these levels? Partly. The main reason is that Wal-Mart stock which has been overpriced for the last 7 years has finally become a safe haven for investors because of its low price WITH OR WITHOUT a rate cut. Buffett and others gurus which can be researched on the great website gurufocus BOUGHT in at prices higher than you are paying NOW. This company armed with their stock buyback will be able to continue raising their earnings per share by 8-11% percent annually MINUMUM. If we get a rate cut as many (not me) expect then obviously consumer spending will be increased but what if a US recession comes? The overall pie may "shrink" but Wal-Mart's share of it will increase as the low cost provider. Kelly criterion investors will love this stock because the chance of it earning" LESS than it did last year with the massive stock buyback is virtually zero. Examine its earnings during the last 3 "bad years" and you will see double digit annual EPS growth. If the EPS is 20% less than expected (8% annual increase instead of the 10% forecasted at valueline) you will have a EPS of 3.97 per share in 2011. In 2012 5 years from now with trailing EPS of 16 the stock will be 63.52. At 44 dollars per share your return will be 44.36% plus the over 2% annual dividend which over the past 5 years has increased 20% annually.
Also the downside on this stock is quite low because the Chinese fund and the many gurus as mentioned above and their "entry points" can be read on gurufocus and if by chance the stock was to fall much further would be "increasing" their positions providing WMT with a "floor". I know billytickets posts are sometimes crude and usually about "boring" big cap stocks with limited upside. But remember Warren Buffett's 2 top rules. One: Don’t LOSE MONEY and Two: DONT FORGET RULE 1.
Recently Wal-Mart reported disappointing sales and the stock dropped down to the high $42's now settling in the upper $43 level. Is this former high flier which was over $70 before the bubble burst ready to rebound? Billytickets will try and help you make your decision.
At first glance many are predicting Wal-Mart's demise and with the recession word out there many believe that the retail sector which Billytickets has been loathe to invest in is for hard times ahead. If you look at valueline which jumps out at you is that valueline is still predicting 10% annual growth for WMT. If you read the 3 to 5 year forecast at the current price ratio it is 12-16% annual price appreciation and adding in the over 2% dividend yield (that was just raised 31%)
The stock has recently been under pressure since the death of Helen Walton who owns a very large chunk of stock that will more than likely be part of a charitable organization. Warren Buffett who knows a few things about stocks has a cost basis which is considerably higher than the current price. The huge 15 billion dollar buyback is proof that management has confidence in its core business. There was a rumor last week that a Chinese fund is interested in purchasing an 8 billion dollars worth of WMT stock in the open market
Is the information listed in the 2 paragraphs above the main reason Billytickets is buying the stock and recommends its purchase at these levels? Partly. The main reason is that Wal-Mart stock which has been overpriced for the last 7 years has finally become a safe haven for investors because of its low price WITH OR WITHOUT a rate cut. Buffett and others gurus which can be researched on the great website gurufocus BOUGHT in at prices higher than you are paying NOW. This company armed with their stock buyback will be able to continue raising their earnings per share by 8-11% percent annually MINUMUM. If we get a rate cut as many (not me) expect then obviously consumer spending will be increased but what if a US recession comes? The overall pie may "shrink" but Wal-Mart's share of it will increase as the low cost provider. Kelly criterion investors will love this stock because the chance of it earning" LESS than it did last year with the massive stock buyback is virtually zero. Examine its earnings during the last 3 "bad years" and you will see double digit annual EPS growth. If the EPS is 20% less than expected (8% annual increase instead of the 10% forecasted at valueline) you will have a EPS of 3.97 per share in 2011. In 2012 5 years from now with trailing EPS of 16 the stock will be 63.52. At 44 dollars per share your return will be 44.36% plus the over 2% annual dividend which over the past 5 years has increased 20% annually.
Also the downside on this stock is quite low because the Chinese fund and the many gurus as mentioned above and their "entry points" can be read on gurufocus and if by chance the stock was to fall much further would be "increasing" their positions providing WMT with a "floor". I know billytickets posts are sometimes crude and usually about "boring" big cap stocks with limited upside. But remember Warren Buffett's 2 top rules. One: Don’t LOSE MONEY and Two: DONT FORGET RULE 1.
