6 Reasons Why Wal-Mart Is A Great Safe Haven (In The Coming Sell-Off)

| About: Wal-Mart Stores, (WMT)


When you own shares of Wal-Mart, Inc. (WMT) you can sleep quite comfortably, and that can be important if an expected market sell-off materializes. The major indices keep hitting new 5 year highs, so it's reasonable to expect that investors will take some profits at some point. In addition, there are the pesky political issues floating about including the debt-ceiling debate that can do no good for the markets. If the market does make a correction, WMT shares could be a great place to be.

As the world's largest retailer with 2012 sales of $444 billion, its stability is unquestionable. It's reported that in excess of 200 million customers visit the 10,400 stores each and every week, which includes stores operating under 69 different banners located in 27 countries. WMT is also shareholder friendly as demonstrated by their consistent increase in dividend payouts and their reduction in outstanding shares.

#1. Being a Laggard Could Mean It's Under Priced

In addition to the obvious, there are other factors that could make WMT shares attractive when a market correction occurs, including the fact that its shares have not participated in the recent new market highs. Being a "laggard" can sometimes be a good thing at a particular point in time since shares may ultimately be viewed as under priced to begin with, and could fall less when a correction occurs.

#2. WMT Has Been Counter-Cyclical In A Sell-Off

During the May to June 2012 point sell-off of some 1,212 points, WMT moved in the opposite direction (gaining nearly 12%), thereby demonstrating its attractiveness as a safe haven. Perhaps history will repeat itself in a coming market correction. More specifically, here's what the market did, and how WMT reacted in the May/June 2012 market drop:

DOW AT MAY 3, 2012 13,213
DOW AT JUNE 4, 2012 12,000
WMT AT MAY 3, 2012 $59.00
WMT AT JUNE 4, 2012 $66.00

#3. Negative News Events Have Been Discounted

Notwithstanding the stability and success of WMT, a number of events have contributed to WMT's weakness during the past 3-4 months:

√ The Mexican bribery scandal

√ The retail sectors somewhat disappointing holiday sales

√ The annual unionization threat

√ The pay-stub deduction issue

√ The announcement for weaker guidance for Q4

It's my view that with the exception of Q4 earnings, expected to be released 2/21/2012, the above cited negatives aren't looming overhead, but they've likely been built into the current WMT price.

On the other hand, the unionization issue will undoubtedly continue to plague WMT since its unionization would clearly be the biggest prize in the world for organized labor. With falling labor union enrollments, the unionization of WMT could revive the labor movement to heights not enjoyed in decades.

#4. Analysts and Price Targets

Supporting the idea that WMT shares are fairly or under-priced, the most recent "Analyst Recommendations and Price Targets" are all OK and positive. No changes have recently been made, none of the gurus are saying "sell," and their price targets have remained constant. Of particular interest is the low end price target of $68.00 given WMT's current price of around $69.00. Here's what they're saying:

Analyst Recommendations
Strong Buy 11
Hold 10
Sell 0
Price Targets
High Estimate $88.00
Mean Estimate $78.73
Low Estimate $68.00

#5. Q4 Earnings Announcement Could Be Positive

WMT is scheduled to report Q4 earnings on 2/21/2013, and since they've already announced weaker guidance for Q4 EPS, I believe it's unlikely that the earnings report will hold any great surprises. If anything, there's a good likelihood that EPS will beat the street and the whisper numbers.

#6. Prospects of a Dividend Increase

As a creature of habit, WMT has had a tradition of raising its dividend during the first quarter of the year. Since WMT's previous five dividend increases have been in the range of 7% to 12%, one could reasonably expect another dividend increase in this range which would likely be announced during the first quarter. It's worthy to note that WMT has increased its dividend payouts for an astonishing 37 consecutive years, and over the past five years, WMT has reduced its outstanding shares from around 4 billion to 3.38 billion which is a 17% reduction.


It seems likely that the market will make a correction in the near future. In my view, considering the lackluster volume, it appears to be losing its mojo. When a correction comes, there will be a flight to safety. Although WMT may have negative issues as cited above, I believe it will be a superior safe haven. Others may suggest many more reasons why WMT will be a safe haven in a coming sell-off. For me, 6 good reasons is enough.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WMT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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