Though only a blip for the long-term investor, value stock Wal-Mart’s (WMT, Financial) resurgence in the first week of 2016 has some extra significance.
Last year, the massive retailer was the worst performer of the Dow after tumbling roughly 30%. But since the new year began, it has risen 6.6%, versus a 2.9% decline for the Standard & Poor’s 500 Index and a 4.8% decline for the Dow Jones Industrial Average Index. This makes it the best performer of the index and the only of the 30 listed Dow companies whose shares have not declined year to date. Down 0.58% since the start of trading Friday, Wal-Mart traded around $64.65 per share.
By contrast, Amazon (AMZN, Financial), an online retailer and one of Wal-Mart’s biggest competitors, saw its price rise almost 125% as growth stocks prevailed last year. Year to date, however, Amazon shares have declined 6.3%.
Wal-Mart attracted value investors for several reasons, namely its low valuation multiples, with a P/E near its three-year low at 12.08, P/B near its 10-year low at 2.27 and P/S near its 10-year low at 0.38. Amazon has much higher multiples, with a P/E near its two-year high at 876.6, P/B of 23.2 and P/S near its 10-year high of 2.86.
Wal-Mart also boasted third quarter revenue of $117.4 billion and net earnings of $3.3 billion, though both were below their respective levels in the same period a year prior. In the past decade, it has generated greater than billion-dollar free cash flow as well.
Amazon for the third quarter reported $25.4 billion in revenue and $79 million in net income, as it poured much of its cash back into the business. Amazon grew at a average annual rates of 28.4% in revenue, 23.9% in EBITDA and 13.4% in book value in the past five years. Wal-Mart, a much older company, saw revenue growth of 7.5%, EBITDA growth of 6.7% and book value growth of 6.5% over the same five-year period. It also gave back a dividend of $1.92 per share – a payout ratio of 42% -- in 2015 and bought back shares.
These among other factors drew many value investors to Wal-Mart stock in the past several years. Warren Buffett (Trades, Portfolio) held 56,185,293 shares of the company at third quarter-end as his eighth largest position, though he reduced it by 6.96% from the previous quarter.
Buffett's Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) was the top guru shareholder of Wal-Mart by percentage of assets managed under Bill Gates (Trades, Portfolio). The next top holders, Richard Pzena (Trades, Portfolio) and Dodge & Cox, both added to their positions in the third quarter. Paul Tudor Jones (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) each sold out their stake in the company as its share price declined in the third quarter.
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