WMT

[fingokra]

It may take disposable income out of the hands of people but people will still be buying soap, toothpaste, toliet paper, soft drinks, etc. They will be more likely to be looking for a good price, and thus WMT. I am just saying this type of reaction could help to counteract the inverse correlation you were talking about. I don't think this idea seems silly, but to each his own.

[buffett]

[ QUOTE ]
Clearly a great long term buy. BUt is this the right entry point? Not clear.

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If it is clearly a great long term buy, why do you care about your "entry point"? Let's say that 10 years from now the stock is at $132. This is a ~12% pre-tax CAGR, excluding dividends, making your initial $10,000 investment worth $30,000. If you wait for the stock to get cheaper, let's say you are able to buy it at $40 in 6 months. Your $10,000 grows to $10,170 in 6 months (ING savings account), then you buy WMT which grows to about $33,500, about 12% higher than $30k. Of course, with dividends the gap would be a little smaller than 12%, and with a holding period longer than 10 years it would be smaller still. If it's clearly a great long term buy, I don't see why trying to get in at the chart's precise bottom is that big of an issue.
-web

[Girchuck]

But the price of fuels affects Walmart distribution networks as well.
They are already as efficient as they can be, and higher transportation costs will force Walmart to raise its prices

[AceHigh]

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

[/ QUOTE ]

Walmart's management constantly over promises and underperforms. For some reason they like to predict higher earnings than they are likely to get and usually miss. I know it doesn't seem like that big of deal, but Wall Street likes companies that make there estimates.

Oil/Energy prices. Who shops at WMT? Mostly people who can't afford to shop at other places. These people are going to be most hurt by the rising cost of gas and heating there houses. They are going to lose a larger percentage of income to energy costs than the more affluent shoppers.

[adios]

[ QUOTE ]
In a rough sense if you look at WMT chart, it almost looks like 1 year down, 1 year up, 1 year down, 1 year up for the past 5 years. Why? Kind of a strange graph.

[/ QUOTE ]

WMT a highly owned, highly liquid stock. FWIW stocks that are widely followed should trade in some sort of range long term due to the nature of equity valuation. Also FWIW I believe that WMT price is reflective of a higer risk premium due to the uncertainty of the effect of higher energy prices on consummers. I like your approach in looking at long term price movements and historical PE's. Basically the info you've provided shows it's probably a good long term trade. Just sell at the top of the trading range.

[adios]

[ QUOTE ]
It may take disposable income out of the hands of people but people will still be buying soap, toothpaste, toliet paper, soft drinks, etc.

[/ QUOTE ]

Consumer non durable spending is what you're citing here and I whole heartedly agree that the underlying strength in this type of spending is more or less "recession" proof. It's funny to hear talk of a recession though when all signs point to a strong U.S. ecnomy. Inflation is the current Wall Street scare IMO and there's actually good reason for that.

[buffett]

[ QUOTE ]
constantly over promises and underperforms

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Color me doubtful.

Please cite at least 5 examples of this happening over the last 5 or 7 years, and then I might believe this.

In 2003 Warren Buffett cast his vote in Fortune's Most Admired Companies list for Wal-Mart, and I seriously doubt he would do this for a company that "constantly overpromises and underdelivers."

-web

[buffett]

[ QUOTE ]
stocks that are widely followed should trade in some sort of range long term due to the nature of equity valuation

[/ QUOTE ]
Please expound on this, especially the part about "due to the nature of equity valuation."

Perhaps I'm misunderstanding you, but I think the following 5-year charts should disabuse anyone of believing what I think you're saying:
Time Warner
GE
Cisco
Exxon
Pfizer
-web

[adios]

What I wrote:

[ QUOTE ]
stocks that are widely followed should trade in some sort of range long term due to the nature of equity valuation

[/ QUOTE ]

What I didn't say that you seem to want to pin on me:

[ QUOTE ]
stocks that are widely followed always trade in some sort of range long term due to the nature of equity valuation

[/ QUOTE ]

Stocks are valued based on future earnings discounted for the cost of equity (risk premium as a function of the stocks beta, the market risk premium and the risk free rate of return). If the market "knows" future earnings growth perfectly then stocks should only vary due to the percieived risk, changes in market risk premium and the risk free rate of return. Due to the expontential nature of earnings growth and that stocks are valued to perpetuity changes in all of the factors mentioned can influence stock prices a great deal. Throw in the uncertainty of future earnings growth and there's a constant "debate" if you will about all of the factors mentioned and thus stock valuations will fluctuate.

Discounted Cash Flow Model

This link refers to WACC the weight cost of capital. When valuing a firms equity only though one should use the cost of equity. The cost of equity is determined by the Capital Asset Pricing Model:

CAPM - Determining the Cost of Equity

Vary the numbers slightly and you'll see that valuations can vary quite widely. It stands to reason that with a company such as Walmart the predictability of earnings is a lot more reliable than a company that doesn't have any analyst coverage to use an extreme example. If the market risk premium stays fairly constant, the risk free rate of return doesn't vary too much, and the beta for a stock remains fairly constant then it stands to reason that the "debate" about valuation will be focused on what the future earnings really are for a company.

As far as the market being overvalued, I can offer reasons why this happened but we really don't know for sure. That's probably a topic for a separate thread. But whatever reason I come up with, I can use a number that will make the valuation over the five year periods seem "rational." The point is that given that WMT is a widely followed company, the debate about earnings should lead to a trading range that is fairly predictable given that the market risk premium stays fairly constant, the beta remains fairly constant, and the the risk free rate of return stays fairly constant.

[squiffy]

My only worry right now, with WMT, is that we may be headed into a recession. And in 2001,though WMT actually went up at some points during the recession, it eventually ended up lower.

But I am not sure how likely a recession is.