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William Spetrino Jr
William Spetrino Jr

Recession proof your portfolio

August 29, 2007 | About:

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.

About the author:

William Spetrino Jr
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.3/5 (27 votes)


David Pinsen
David Pinsen - 10 years ago    Report SPAM
I am not predicting Wal-Mart's "demise", but I don't feel any urge to buy the stock. If I were a portfolio manager with billions of dollars to put to work in dozens of stocks, I could see WMT being a safe choice -- not a lot of downside, probably some upside. Plus, it's almost a form of portfolio insurance: if the stock doesn't do well, then plenty of my peers who own it will suffer too, so in the worst case, it won't hurt my relative performance.

BillyTickets, though, isn't someone who's buying dozens of stocks -- he advocates super-concentrated portfolios comprised of about five stocks. Is Wal-Mart really one of the five best stocks to own right now? I'm not convinced by the essay above, which says nothing about the difference between Wal-Mart's situation today (having essentially saturated the American market for big-box stores and having challenges growing internationally) with its situation during previous years. I'm not sure that simply extrapolating past trends is as helpful here. Much of Wal-Mart's future growth will depend on its success (or lack thereof) with new, untested types of smaller stores.

Also, I wouldn't use predictions of additional buying by guru owners as a reason why you feel there is little downside -- who knows what the gurus will do? They have been known to sell stocks they own as well as buy more of them.

Two other points, while I am continuing my devil's advocacy:

1) Wal-Mart's high debt ($43 billion versus $6 billion in cash) should be taken into account when considering its valuation, earnings expectations, and potential for future buybacks.

2) Wal-Mart's stock price has declined recently despite negligible short interest -- less than 1% of the stock is currently sold short. If short sellers had driven the stock down, at least we'd know they'd have to buy the stock at some point to cover their short positions. By contrast, whoever has been dumping Wal-Mart recently won't have to buy it back.
Lzou - 10 years ago    Report SPAM
I see values from both posts. Just want to point out that WalMart's major future growth should come from international business while smaller stores in US certainly is a possible, but untested (as DaveinHackensack said). I think that WalMart has plenty room to grow in Asia and they should put more effort on international business. Look at YUM. It's US business is slow, but has done tremendous success in China. So, WMT has this potential and good buyback plan (hopefully it will start to execute soon like HD). Actually my only problem on WalMart is that I am not very confident on Scott Lee. I own WMT at cost base around 46-47. One of reasons I bought that time was because Joel Greenblatt and WEB bought it at around this price. I have more confidence on them compared to Scott Lee.
Billytickets - 10 years ago    Report SPAM
Dave you are correct that I do NOT own a lot of stocks nor care to.Iam NO doubt the most concentrated portfolio investor on here as well as the most "annoying". First of all I appreciate all your"feedback" about WMT and enjoy peopel playing the devils advocate. I will try to"answer" your valid points that you raise.

Many gurus own this stock Dave but thats NOT why i have purchased it.I have purchased it because when WEB puts a billion in when the stock is 48 a share 18 months ago and the stocks EPS is higher now I "assume" that WEB still thinks its a "buy" at 48 today being taht he did not sell it. If WEb's goal is getting 15% annually my guess is that hefigured it would be worth 55or more today. My guess is that he has been"buying" during this price drop from 49 to the 43 and change level and others"sharpies" will follow.So its not just who "bought" but what they paid. Are Everillard Buffett and company going to"add" at these levels..My"educated guess" is that they are.I doubt that Buffett or Evillard or pzena CARE about what their peers think or are doing just for the record

Is Wal mart one of the top 5 OVERALL companies in America price nonwithstanding for me personally?No But I can PROMISE YOU that at these PRICE LEVELS WAL MARTis in the top 3 when RISK/REWARD is weighed in .NO DOUBT. How many people would love to buy a stock with NO DOWNSIDE? Wal Mart 's TERRIBLE YEAR Will raise EPS probably ONLY 8%. There is Virtually NO chance that WAL Mart's EPS will be lower now than it is in 5 years. ( those who disagree can bet me up to 100K on this)the question is are they going to be stuck on earning "just" 8% or get the 10% annually EPS gains that Valueline and others believe.

dave you have made an excellent point about short interest being REALLY low.This is the REAL REASON this is abuy.So why did WMT stock drop?WHo was selling? Is this REAL fear or Imagined fear?

First of all were the sellers of WMT taking profits? No the stock was 70 more than 7 years ago and is near a 52 week( and longer actually) low. 2 events have happened in the past 6 weeks which has "caused the drop".

1) The death of Helen Walton has caused the charitable organziztions who get her stock to decide what do with it. Whatever they choose to do it is NO DOUBT that their will be more stock avaialble to potential buyers on the market then there was BEFORE her death,adding to supply 2) is that because of the liquidity concerns many hedge funds and institutions NEED MONEY fast and selling a small cap with low volume will NOT raise that much cash FAST. ALL large caps have suffered due to these liquidations with "sharpies" like WEB Icahn Peltz Evillard and others "greedily" snapping up all the bargains. THEY ARE NOT SELLING WMT because they feel the moat is destroyed or from some"real " reason.( poor Eps or fundamentals) this is the key though DAVE.

NONE OF THIS INFLUENCES the earnings of WMT. I have an influential circle of 12 millionaires that I do business with.All 12 say they shop at Wal mart regularly despite 5 of them complaining about the stores being drab. All 12 of these people CHOOSE to shop there and have no plans to stop anytime soon. Wal Mart earns in excess of 10 billion in free cash flow every year and will continue buying back their shares especially at this bargain basement price. If we do have a recession ( which i dont think but of course is possible) Wal Mart as the low cost provider will be able to grab market share from those who "dont feel the pinch" to put up with WMT's drab stores

ask yourself these 2 questions 1) what is the odds that WMT's EPS will be lower 5 years from now than today? 2) Ata bargain price, with a HUGE moat( more than 4 times their biggest competetor) with alow short interest and the Chinese funds,WAL mart themselves and "gurus" like Buffett and Evelliard and others "greedily" eyeing this company and NO Profit takers in sight would you think the next 15% move would be up or down?

Time as it always does will tell but BillyT and WEB have both"thrived" in these conditions.im out peace

Vooch - 10 years ago    Report SPAM
As soon as Helen Walton's foundations sells large amounts of WMT (heck, it could be right now!), index funds will be forced to buy more WMT, albeit whenever S&P does reindexing (ie. later). Buy low, Sell high...you know the deal.

I'm staying long WMT and will buy more WMT.

- Vooch

David Pinsen
David Pinsen - 10 years ago    Report SPAM

"dave you have made an excellent point about short interest being REALLY low.This is the REAL REASON this is abuy."

Thanks, but I think you misunderstood my point. Short interest is actually a bullish indicator, since it represents future buying. All things being equal, if a stock's price goes down, it's better if this was due to short sellers and not simply longs selling: the shorts have to buy the stock back at some point; the longs who sold don't. Don't feel bad if this seems counterintuitive at first -- I got this wrong the first time I saw it on a prep quiz for the Series 7 thirteen years ago.

"I can PROMISE YOU that at these PRICE LEVELS WAL MARTis in the top 3 when RISK/REWARD is weighed in"

We'll have to agree to disagree here. I can think of four mega cap stocks off of the top of my head that have, IMO, better risk/reward characteristics at current prices: TM, GE, XOM, and BRK.

"I doubt that Buffett or Evillard or pzena CARE about what their peers think or are doing just for the record"

On this point, I agree with you. Those gurus are all part of a special breed of long-term, value investors who don't run with the herd. But plenty of WMT is owned by mutual fund managers who do run with the herd.

Thanks again for the original post. As always, it's enjoyable and useful to have these discussions with you. I'm not especially bearish on WMT. It's just not one of the stocks I'd bring with me to a desert island if I could only pick five.

Billytickets - 10 years ago    Report SPAM
Dave I enjoy our discussions as well and find them very helpful . Although I have been "jobless" for 17 years now and have been investing in tickets sports memorbalia and stocks and although my success has "averaged" Considerbly higher than my goal of 13%annually which has grown more difficult as the amount managed has become quite substantial Despite my "unorthodox success" I actually"enjoy" debating the merits of my common stock investments which are VERY CONCENTRATED unlike my sports memorbalia and tickets which are spread over hundreds of purchases yearly

Dave as far as the short interest being low I PERSONALLY think that is bullish. I understand your argument about future buyers but The real reason this stock dropped is because of Helen Walton's death and during the"liquidity" crisis many funds had to raise cash fast.We can agree to disagree but I think most of the"fear" in WMT is imagined but not real. I personally would feel more"bearish" if the same peopel who"shorted" Lucent from the 80s to 2 dolllars were"shorting" WMT. Of course knowing Pzena evelliard and WEB and WAL Mart and the Chinese all"have interest" in the stock and deep pockets should deter possible shorts

I love BRK and have written an artcile telling people to buy it at 3580 .However at todays closing price of 3900 my"formula" says WMT at 43.60 has a "greater risk reward"( i LOVE BRKand am VERY Bullish but WMT is"cheaper" today) 3 weeks ago when WMT was 49( and i didnt own it) and BRK was 3580 .BRK had the higher risk reward.The 4 stocks u named are all great companies and should do well but I believe WMT will do better . I have invested in ONLY 3 stocks witha track record longer than 18 months,1) More than 20 purchases of MO which has yielded me MORE than a 3 BAGGER ( bulk invested between 2000-2002) on MO since 1994-2002 ( not to mention a current divyield near ( 15% of purchase price) and BUD has yielded me over 10% compoundedannually and BRK has yielded me over 20% compounded annually in the slightly less than 2 years I have owned it. I made 21% on WMT in 3 months last year ( 84% annuallized) and JNJ and WMT ( 43.40) this year i have a lower basis than WEB and a similar one to him in JNJ. ( 61) WEB who has made over 100 billion investing and knows a thing about value investing seems to"agree" with my picks this year which i consider to be"bullish" . JNJ WMT and KFT are still at"buy" levels and I consider all 3 to be superior to your 4 picks now at todays prices. Again being "different" is fine for me. Each investor must "weigh" risk and reward and like Buffett says each person calculates IV different.

Many on here think I own too"few" stocks and am neglecting the larger profits possible with smaller less followed undervalued companies. Guilty as charged. Like i have stated earlier I have about 15% invested in sports memorbalia and tickets where the returns are VERY HIGH . My "formula" for equities which was devised from a combo WEB and MUNGER and Phil Fisher and the fact many "contrarians" like Buffett and Evillard ALso LOVE JNJ makes me realize that Billytickets portfolio is "on the right track". I also thank everyone who has read my book and sent me emails detailing their feedback

While some think"shameless cloning" is NOt as rewarding as picking your own stocks I can assure you that while my portfolio does not win any "style points" THE MONEY is just as GREEN . Like i said before iam glad that most everyone in the world sees things different.If they didn't i would have to stand outside with a "tin cup" or worse yet go to a job.

Again dave thanks for "playing" devils advocate and challenging my"ideas". The mental jousting and the information displayed in here are helping us subconsciously as well as "educating" the ambitious readers of gurufocus. Peace

Billytickets - 10 years ago    Report SPAM
How many people think WMT is a buy? Hold? Sell? Like to hear your feedback and WHY you think as you do.peace
Spaul - 10 years ago    Report SPAM
Buy: unless you've got a big position already. I see it as a good foundational piece of a 10-stock portfolio, say 7-10%.

2 reasons apart from what I've read elsewhere on this site, though maybe I'm repeating something I missed:

1) Every single year there is a new crop of "kids" moving out on their own, often going to college. WMT can supply many of these students' (and non-students') dorm/apt. with home furnishings and groceries and their school supplies including computers. When I think of the number of 2 and 4 year colleges and universities (and by the way, majority of these not in wealthy neighborhoods nor in urban settings) and the number of graduating high school seniors year in and year out (and the growth in the education industry/number of students going to college), I see a great opportunity for whichever companies can get the biggest portion of the pie. I think WMT is in a great position to expand its share of this business and find domestic growth by developing this market in new ways.

2) Internationally, I think WMT will hit or miss by country, and where it hits, it will do great, where it doesn't, it won't push the matter. It already has partnership with suppliers and some retailers around the world; I wonder if it couldn't eventually find itself working something like a distribution broker/consultant/partner for wanna-be Walmarts elsewhere, when it doesn't find its own stores doing well under the WMT name.

Billytickets - 10 years ago    Report SPAM
Spaul very interesting . Lets hear from more people
Lzou - 10 years ago    Report SPAM
I would say "buy" too. its current price probably assumes its growth will be always only ~7-8%, no upside at all.

Even though I think Scott Lee is not doing his job very well, WMT's moat and scale still keep its business growing in several areas: (1) on-line store (2) eletronics (3) medicine (4) in-store clinic and banking. More importantly its reach to emerging countries like China and india is far ahead of retailers in US. Even though it is taking time for WMT to demonstrate its advantages in the new culture and environment, it is well positioned for future growth.

BTW, did I mention its share buyback program? Bottom line is it is a long-term player and time will tell. But, if Scott Lee retires sooner, it might realize its potential quicker :)

I own WMT
Billytickets - 10 years ago    Report SPAM
Lzou:as usual EXCELLENT post.Read this article talking about recession proofing your portfolio and see howmany"billytickets specials" are listed http://www.thestreet.com/_yahoo/university/personalfinance/10379470_3.html
Billytickets - 10 years ago    Report SPAM
Today this stock is being hit again by"imagined risk".Load up as it has dipped under 43
Billytickets - 10 years ago    Report SPAM
Today "surprise surprise " the sky is NOT falling so fast on WMT. On Cnbc today an analyst said he wasnt impressed by the same store sales numbers but said the stock was"cheap" at the pre market price of 47. Those of you who could DISTINGUISH BETWEEN REAL and IMAGINED FEAR will make over 10% less than 3 weeks( over 180% annualized return if selling today.lol)

Posted by: billytickets (IP Logged)

Date: September 25, 2007 09:49AM

Today this stock is being hit again by"imagined risk".Load up as it has dipped under 43

Stocks Discussed: WMT,

Billytickets - 9 years ago    Report SPAM
This is IMAGINED fear NOT real fear. As bad as things were today WMT did fine
Billytickets - 9 years ago    Report SPAM
Those believed in "preacher Billy" have seen WMT go over46
Billytickets - 9 years ago    Report SPAM
BillyT did something RARE today he sold WMT at 46.15 after buying it at 43.42 making 6.28% in about 3 months which is over 25% annually. Iam not"bearish" on WMT but my new"love" BNI has "distracted me" and perhaps WMT may get "hit" with end of the year tax selling .In the low43s and high 42s I would be a buyer. I really thought WEB would have added to his position in the 3rd quarter when WMT went in the 42s but he apparently did NOT. Instead he was chasing my "new love" BNI who he has"showered" with 5 billion. Just keeping you peopel updated .At this point today Iam at an all time high. Ill keep you up to date .peace
Billytickets - 9 years ago    Report SPAM
Well WMT went over 49 and BNI went over 84.50 I sold WMT at 46.15 and left about 5% on the table and averaged down BNI and made about 5%

If you read and reread ALL the posts here you will learn how to "assess " risk and those who bought WMT at 43.42 and liquidated today at 49 made 12.85% in less than 3 months ( over 50% annualized) with VIRTUALLY no downside risk. Karen Finerman who runs a hedge fund and is the "star" of Fast Money and a true value investor and others were also on"board".

For those who saw the need to"recession proof" and tuned out teh imagined risk they made a great hit.Hope rereading this helps those who"doubted" BillyT.peace

Kfh227 - 9 years ago    Report SPAM
lzou hit it right on the head. WMT has something like 40 stores in China I think. WMT has done well in some counties and failed in others. But CHina is working. China is a huge demographic.

I think people see store growth in the US slowing, so the PE has corrected. The PE correction was due regardless. But people seem to have forgotten that WMT has plenty of room for internaitional growth.

As for value. I think Yield coupled with PE are more than enough reason to buy WMT. has anyone done a DCF?
Billytickets - 9 years ago    Report SPAM
FYI : WMT is no longer a "buy" for me at todays closing price as those who bought my book "know" the "proper entry point".

I think if someone bought at these levels they would not LOSE money but in my view the "chocolate" has been licked off the eclair. If you did not"believe in this stock in the 43's then you"missed" this one IMO,although I did tell clients who wanted it at 44 and change they would still do fine.

I LOVE WMT the company despite the fact I HATE retail and in the 43's it was JUST screaming. It doesn't sound so loud at 49 but Karen Finerman said they sold "some" the other day but are still "invested" so take that for whats its worth.peace
Billspetrino - 7 years ago    Report SPAM
What's ironic is this stock never revisted this level even at Dow 6700
Billspetrino - 7 years ago    Report SPAM
Also ironically this summer an analyst on Fast Money said WMT could drop down to 35 dollars per share. No offense but it aint happening.You could bank on it.Just like you could have banked on this stock at Dow 13000
Billspetrino - 7 years ago    Report SPAM
Thanks to all who watched my free webinar with Bill O reilly this week and signed up for my newsletter and my investment forum

Did you all notice the shift towards defensive stocks this week?

This thread is PROOF that if you get the RIGHT stock at the RIGHT entry point

You will make money ,even if the Dow is 25% lower 3 years later

Getting the right entry point is KEY

Billspetrino - 7 years ago    Report SPAM
What's ironic is that analyst on Fast Money that I wrote an article about calling him a moron for saying WMT would go to 35 dollars has been"removed" from the telecast

Apparently others felt he was a moron as well

Maybe it was him who gave this one star?haha

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