The Beast From Bentonville Delivers...
Three weeks ago, I recommended going long WMT at $44.90. Today the company came out and said that October sales were above expectations -- the stock traded as high as $47.40, which is very close to my original first trading price target of $48. There is no doubt in my mind that WMT is a very controversial name -- only last week, there was a memo leaked out about high-ranking company officials thinking of a variety of ruses to lower WMT's employee benefits costs (not that it had a lot of those in the first place, considering 5% of WMT workers are on Medicare, i.e. they are too poor to afford anything else) by not hiring handicapped people, for example.
However, there is a price for everything and at $44, WMT was just way too cheap, both from a historical perspective (where the stock has been in the past 4 years), and from a future earnings perspective. Love it ot hate it, WMT will eventually deliver -- its sheer mass and consumer market power makes it a survivor in almost any U.S. macro- economic environment. Hence, despite its many internal problems, WMT, more likely than not, will just steamroll ahead -- most Americans can't afford not to shop there. It's tough to beat WMT on price, and in the current energy-induced squeeze on consumer wallets, price will always come first before quality, plus WMT is actually working on cleaning up its quality image anyway (see its latest fashion drive, for details). Hence, my call from a few weeks back, proclaiming the stock to be a longer-term value buy. It ain't gonna get to $55 "tomorrow", but coupled with a juicy 1.3% dividend yield and its relevantly safe position in the U.S. retail world and the fact that the stock has taken a lot of bad news (and a huge SPX index rebalance overhang) over the last 6 months, I do consider the name to be a "buy it and put it away for a while" type of an investment.
The good news out of WMT is obviously helping all retailers (the MRVX and RTH are both up over 3%) and the market in general: the SPX is actually trading at or slightly above my resistance level of 1205. Energy has stabilized, and technology and financials (take a look at Goldman (GS) and Morgan Stanley (MWD), for example) are dragging us higher, which is what I expected to see if the 4Q rally were to happen. Well, it's happening right now, I think (and I am crossing my fingers and toes as I write this) -- and yes, I know it's the last day of October and perhaps a few funds are doing a bit of window-dressing, but overall, all signs point in the direction of a rising tide over the last two months of the 2005 calendar year. As a friend of mine from London always says, "there is just too much nervous U.S. cash out there, sitting on the sidelines", courtesy of Mr. Greenspan.
However, there is a price for everything and at $44, WMT was just way too cheap, both from a historical perspective (where the stock has been in the past 4 years), and from a future earnings perspective. Love it ot hate it, WMT will eventually deliver -- its sheer mass and consumer market power makes it a survivor in almost any U.S. macro- economic environment. Hence, despite its many internal problems, WMT, more likely than not, will just steamroll ahead -- most Americans can't afford not to shop there. It's tough to beat WMT on price, and in the current energy-induced squeeze on consumer wallets, price will always come first before quality, plus WMT is actually working on cleaning up its quality image anyway (see its latest fashion drive, for details). Hence, my call from a few weeks back, proclaiming the stock to be a longer-term value buy. It ain't gonna get to $55 "tomorrow", but coupled with a juicy 1.3% dividend yield and its relevantly safe position in the U.S. retail world and the fact that the stock has taken a lot of bad news (and a huge SPX index rebalance overhang) over the last 6 months, I do consider the name to be a "buy it and put it away for a while" type of an investment.
The good news out of WMT is obviously helping all retailers (the MRVX and RTH are both up over 3%) and the market in general: the SPX is actually trading at or slightly above my resistance level of 1205. Energy has stabilized, and technology and financials (take a look at Goldman (GS) and Morgan Stanley (MWD), for example) are dragging us higher, which is what I expected to see if the 4Q rally were to happen. Well, it's happening right now, I think (and I am crossing my fingers and toes as I write this) -- and yes, I know it's the last day of October and perhaps a few funds are doing a bit of window-dressing, but overall, all signs point in the direction of a rising tide over the last two months of the 2005 calendar year. As a friend of mine from London always says, "there is just too much nervous U.S. cash out there, sitting on the sidelines", courtesy of Mr. Greenspan.
posted by Ivan at 10/31/2005 11:47:00 AM
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