Bargain Hunting In Wal Mart

Wal Mart was recommended in Barrons this weekend as well as by Jeff Saut in his weekly missive. Wal Mart trades at a little over 12 times this years projected earnings which does seem like a bargain for a company that has steadily increased earning through good times and bad. In addition, they installed new management that will treat Wal Mart like the mature business it is rather than spending on growth initiatives.

I have also been considering Wal Mart in recent weeks but am concerned about some short term issues. The main issue is that extended unemployment has been cut off for millions of Americans. This is likely to hit Wal Mart customers disproportionately. In addition, there appear to be price wars at the low end.  Same store sales in the US have been negative and recent growth has come from overseas. The stronger dollar might mute those overseas profits.

Even considering all these near term issues the stock is probably cheap. The problem is that I am not sure that these issues have been recognized yet by investors. I would be much more comfortable buying once the bad news is out in the open.

1 comment:

IC said...

I have a friend who is a primary manufacturer in China. He says that in the past WalMart was really quality conscious unlike Kmart. Now they could not care less, and are having really significant push-back from the suppliers they used to bully.