WMT

[JTrout]

WMT

I'm considering a purchase. The #s look very good to me, and I think the risk/reward ratio is extremely good.

Positives:
3-5 yr. expected earning growth 13.5%
3-5 yr. expected Total Return 15+% (currently @ 43.75)
A++ Financial Strength
Very High Earning Predictability
Aggressive share buyback program
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This stock has dropped in price significantly since 2000 (41.4 -68.9).
In this time,
it's earnings have grown from $1.41 to $2.50.
It's profit margin, ROE, cash flow, = or better.
It has bought back app. 10% of it stocks.
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I realize the P/E ratio was way out of whack in 2000, and has made corrections, but at less than 20 right now, I think the correction is complete.


Play devil's advocate.
What am I missing? What's holding this stock back?


Thanks in advance.

not much room to grow

[JTrout]

"China is now at the forefront of Wal-Mart's foreign store-opening program. Just 32 stores started up in that huge country since 2000, but sq. footage there is slated to increase by 30%- 50% in both fiscal 2005 and 2006. Wal-Mart's goal is to expand from 46 units in 22 cities, at present, to most local markets over the next 10 yrs., which implies a store count of at least 400 in China by then."

"The co. is making headway in penetrating domestic urban markets."


From S&P stock research:

Investment Rationale/Risk September 01, 2005

We have a strong buy recommendation on the shares. We believe WMT will remain well positioned to increase its U.S. market share, due to continued low price leadership, an expanding merchandise assortment with improving quality, and strong square footage growth. An improving economic environment coupled with strong store expansion plans should provide WMT with an opportunity to better leverage operating expenses. These factors bode well, in our opinion, for a return to more robust sales and earnings growth over the next few years.

Risks to our recommendation and target price include economic pressures such as rising unemployment or lower consumer confidence, which would negatively affect WMT's core customers and the company's results.

Our 12-month target price of $56 is derived from a blend of our analysis of relative P/E ratios as well as our discounted cash flow (DCF) model. Our DCF model suggests an intrinsic value of $56 to $60 per share and assumes a weighted average cost of capital of 9.0% and a terminal growth rate of 3.0%. We believe the shares should trade at a 15% premium to the S&P 500 on a P/E basis, reflecting the company's leadership position and our projection of an acceleration in comparable store sales growth in FY 06. Applying a P/E of 17.7X to our FY 07 EPS estimate of $3.05 implies a share price of $54.

[cdxx]

[ QUOTE ]
not much room to grow

[/ QUOTE ]

the china bit is good, but it's not going to grow by that much in the next year. you do not need to own walmart to capitalize on china expansion. buy manufacturers, not huge retailers.

[JTrout]

But is growth, or lack of, the final determination?

I like growth, but I like value, too. And safety.
I'm a conservative gambler! [img]/images/graemlins/crazy.gif[/img]

Again, the risk/reward here looks very good to me.


It looks to me like a low-risk way to make 50% on your investment over a 3yr. period, or so.

[JTrout]

[ QUOTE ]
the china bit is good, but it's not going to grow by that much in the next year. you do not need to own walmart to capitalize on china expansion. buy manufacturers, not huge retailers.

[/ QUOTE ]

What about Home Depot ?
Do you like it better, or is it too much of a huge retailer, also?


Thanks for your thoughts.

[buffett]

There's no way you're going to get me to play devil's advocate on the issue of buying WMT right now. But there is one other thing to consider. If it's within both your Comfort Zone and your Circle of Competence, then you might want to take a look at the Jan08 calls. (If it's not in both, though, just forget about it.)
If you're right about making 50% on just the stock, the Jan08s will do far better. Here's two scenarios, one with the stock hitting 60 and one at 65 (each of these two prices was determined by the time-tested methodology known as SWAG):

Security / Price / End Value / Gain
Stock / 43.60 / 60 / 38%
Jan08 @40 / 9.10 / 20 / 120%
Jan08 @45 / 6.70 / 15 / 124%
Jan08 @50 / 4.40 / 10 / 127%

Security / Price / End Value / Gain
Stock / 43.60 / 65 / 49%
Jan08 @40 / 9.10 / 25 / 175%
Jan08 @45 / 6.70 / 20 / 199%
Jan08 @50 / 4.40 / 15 / 241%

-web

[squiffy]

Good post. This is what we need more of. Specific discussions of hard facts, about specific stocks. And you even post some raw data. Let's discuss and please come back to it in 3 months, 6 months, 1 year.

It's very frustrating that here and on Yahoo it's nearly impossible to find anyone with intelligence willing to seriously discuss the merits of a stock.

Basically it's a bunch of 15 year old kids who have 100 shares swearing at each other.

Let me study it and read the annual and quarterly reports and will get back to you in a few days.

[squiffy]

I will probably make about 10-15 separate little posts, as time permits. So please be patient.

First of all, in the long term 10 years/20 years or even ultra long term 30-40 years, WMT will be and is a great stock.

Read Stocks for the Long Run by Siegel.

Second, small investors really need to consider the short term too, because they tend to have a more limited capital inflow, a shorter time horizon, etc.

Third, before you even consider the stock's fundamentals you need to look at the short-term economic picture in America and Overseas.

Long-term WMT should do well in China. Are they involved in India? How long will it take before we see profits overseas? How much a percentage of WMT's total profit are overseas stores?

Is there much room for expansion in the U.S. or is the market saturated?

If most of the profits are from teh U.S. currently and in the forseeable short term future. Then let's focus on the U.S.

Right now, the chart has been going down? For about a year to a year and 6 months? WHY? It peaked in 2003 in what month? WHY.

First explain that to me. IF you haven't considered that. ANd if you cannot give me a plausible answer to that question. THen there is nothing further to discuss.

[squiffy]

What factor or factors most affects a stock's future price on the market? What makes the chart go up, up, up? What makes the price jump?

This is my second question for you. Just to make sure we are on the same wavelength in terms of basic theory of investing.