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Wal-Mart (WMT) has had a nice run in 2012 with an almost 18% gain so far for the year. However, given the headwinds that are mounting for the world's largest retailer; I think it is dead money at best in 2013. I would recommend staying away from the shares unless they have a 15% to 20% pullback.

7 reasons WMT is not a bargain at $70 a share:

  1. The company is probably the # 1 target for unions in this country. Given the election results, don't look for any support from this administration that relied on these unions to gain a second term. The widespread protests at stores during Black Friday and the slow response from the NLRB (National Labor Relations Board) to circumvent these actions are just a taste of things to come.
  2. The company is also encountering populist resistance in key emerging markets like India, which it is counting on for future growth. Mexico is also problematic as the company is embroiled in a bribery scandal.
  3. One of the attractions of the stock is its growing dividend distributions. Given that it just moved up its dividend payout to avoid the higher dividend taxes coming in 2013, I would look for the company to shift more of its cash flow to stock buybacks from paying out dividends, reducing payout growth.
  4. Amazon (AMZN) is building distribution centers throughout the country and trying to build out one day fulfillment capability as well. Given that the company cares little for short term earnings, is not afraid to have thin margins and has great logistical systems, this may be the toughest competitor Wal-Mart has faced.
  5. It looks like the payroll tax holiday will expire to begin 2013. This means $120B annually out of the consumer's pocket, a decent portion at the low end of the consumer market. I would look for this on the margin to drive some of Wal-Mart lower income customers to the dollar stores.
  6. Insider selling picked up markedly in November compared to previous months.
  7. Earnings rose less than 10% this year even as the stock has shot up some 18%. I don't see this type of multiple expansion in 2013 and investors are not getting a bargain on Wal-Mart's 5% annual revenue growth (5 Year projected PEG of 1.52).
Source: Wal-Mart: Looking Like Dead Money At Best In 2013