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Buy WalMart

June 24, 2012 | About:
Gordon Pape

Gordon Pape

In keeping with my advice to buy stocks in companies that can continue to generate profits in a weak economy, I am adding Walmart (WMT) to our Recommended List.

The company hardly needs an introduction. I would be surprised if there is a single person reading this column who has not been in a Walmart store at one time or another. We all know the experience: endless aisles of merchandise ranging from baby food to large-screen TVs, with hardly any staff available to help or advise. Apart from the friendly greeter at the door, it's an unmemorable shopping experience.

So why do people flock there? Because it's cheap, of course. Walmart consistently manages to undersell everyone else, in part because of the hard-line deals it drives with suppliers and in part because of its controversial success in keeping trade unions at bay. When times are tough, cheap is what people want - just look at the rapid rise in the shares of Dollarama for evidence.

But you can't buy TVs or groceries or gardening supplies at Dollarama. Walmart has it all. It has dominated the discount market for many years and will continue to do so for the foreseeable future.

Recently, the company celebrated its 50th year in business at its annual meeting in Fayetteville, Arkansas (the company is based in nearby Bentonville, reflecting its deep Middle America roots). During the meeting, CEO Mike Duke pledged that Walmart will continue to thrive for the next 50 years, based on its five "enduring values": integrity, opportunity, family and community, purpose, and responsibility.

"I've said this before, and I'll say it again, Walmart is the best-positioned global retailer in the world today," he said.

It may sound boastful, but he's right. No one else is in the same league.

Walmart may represent the values of Middle America but it has become an international retailer with 10,130 stores under 69 different banners in 27 countries. The company employs more than two million "associates" world-wide and claims to serve more than 200 million customers a week.

In mid-May, the company reported results for its 2013 fiscal first quarter (to April 30). Earnings from continuing operations came in at $1.09 per share (figures in U.S. dollars). That was up from $0.96 the year before and ahead of the company guidance of between $1.01 and $1.06 per share. U.S. comparable stores sales increased by 2.6% while sales at its Sam's Club stores were up 5.3%, not including fuel. Those are healthy increases for a well-established company in a weak economy.

Consolidated net sales were $112.3 billion, an increase of 8.6% from last year. Walmart ended the first quarter with free cash flow of $3.1 billion and had cash in the bank of $8.1 billion. Return on investment (ROI) for the trailing 12-month period was an impressive 18.1%. From a financial perspective, this is a very sound company.

The share price has moved higher in recent months, bucking the trend in the U.S. market. However, at about 14 times anticipated fiscal 2013 earnings, it does not appear to be out of line.

In March, the company announced a 9% dividend increase, bringing the annualized payout to $1.59 a share. Based on Friday's closing price of $67.30, the yield is 2.4%.

About the author:

Gordon Pape
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 3.1/5 (15 votes)


Invest E Gator
Invest E Gator - 2 years ago
Hi Gordon, yes, I agree, Wal-Mart is ok, and the long-term investment potential is there. Five stars! There is also an interesting competitor growing out of the Texas area called HEB, meaning, Here Everything's Better. Sadly, they are still privately owned. I do wish they would go public already as they are such a marvelous place to go grocery shopping and I suspect it could be that they are bringing a bit of a nuisance to Wal-Mart as they continue to expand in the region. There is also an interesting company up in Canada, but I cant remember their name, perhaps you could help... I saw them in the Toronto area and they have (extremely) yellow stores and it seems like maybe the individual locations are franchised or something, because the name of the owners comes with it - Something like "Karen and Bob Patukey's (?????) Discount Grocery Store", and then at some other location you see "John O'Nelly's (?????) Discount Grocery Store". Something like that. Do you have any idea of which company I am talking about and if they are publicly available?
Augustabound - 2 years ago
If the signs are yellow and have the franchisees name after it, you're thinking of No Frills. They're owned by Loblaw which is majority owned by Weston. Both are public companies listed on the Toronto Stock Exchange.

From a Canadian consumers point of view, there's nothing to get excited about No Frills.

Kfh227 premium member - 2 years ago
Walmart undercuts everyone else? What about Costco?
Invest E Gator
Invest E Gator - 2 years ago

That sounds right. Thanks for that and the input.

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