It appears that institutional investors are very heavily selling their Wal-Mart (NYSE:WMT) holdings since May when the price was almost $80 and they will just keep selling until the stock drops at least 10% to $72
How big is Wal-Mart?
Everybody knows Wal-Mart is already the largest company in the world by sales with annual sales of almost half a trillion. They don't even have to open more stores anymore to stay on top. What is Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) of the Netherlands going to do to increase annual sales by at least two billion? Sell more oil? They cannot do it because the price of oil would drop and that would hurt their massive profits.
It is only a matter of time before Mike Duke starts selling subsidiaries with a lot of sales but low profit margins like Wal-Mart Tennessee and Wal-Mart Louisiana to Aeon (OTC:AEOJF) of Japan, E-Mart of South Korea and of course, Lojas Americanas of Brazil.
After over half a century, Wal-Mart is very far from being a global company with operations in only 15 countries. It is time to use that foreign fresh capital to expand to other less developed countries where people are still buying cheap things at very high prices because there is no Costco (NASDAQ:COST), Target (NYSE:TGT), Dollar General (NYSE:DG), Family Dollar Stores (NYSE:FDO) and Dollar Tree (NASDAQ:DLTR) within a thousand miles.
How profitable is Wal-Mart?
Everybody knows Wal-Mart is already the 16th most profitable company in the world with annual profits of over $17 billion. They already sell gasoline trying to catch up with PetroChina (NYSE:PTR), Chevron (NYSE:CVX), Royal Dutch Shell of the Netherlands and Gazprom (OTCQX:GZPFY) of Russia. Also, they already lend money trying to catch up with Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), Bank of China, Agricultural Bank of China, China Construction Bank and ICBC of China.
It is only a matter of time before Mike Duke buys Level 3 Communications (NYSE:LVLT), Frontier (NASDAQ:FTR) and Windstream (NASDAQ:WIN) to compete with China Mobile (NYSE:CHL). It is only a matter of time before he buys Alcatel-Lucent of France (NYSE:ALU), BlackBerry (NASDAQ:BBRY) of Canada and Nokia (NYSE:NOK) of Finland to compete with Apple (NASDAQ:AAPL) and Samsung (OTC:SSNHY).
This leaves only Volkswagen (OTCQX:VLKAY) of Germany which is currently the sixth most profitable company in the world with huge annual profits of $28.6 billion.
Which brings me to my next point: Are you going to buy your next used car at Wal-Mart's parking lot?
There are only two ways that Wal-Mart can choose to compete with Volkswagen:
- Buy Auto & truck parts and sell them to Volkswagen to make money each time they sell a car
- Buy an Auto & Truck manufacturer to compete directly with them
There are only 25 Auto & Truck manufacturers left in the world and to turn a profit almost as large as Volkswagen you would need to buy all of the following companies:
Nissan (OTCPK:NSANY) of Japan, Kia Motors (OTC:KIMTF) of South Korea, Toyota Motors (NYSE:TM) of Japan, SAIC Motor of China, Tata Motors (NYSE:TTM) of India, Honda Motor (NYSE:HMC) of Japan, Renault of France (OTC:RNSDF), Dongfeng Motor Group of China (OTCPK:DNFGF), Isuzu Motors of Japan (OTCPK:ISUZF), Great Wall Motor (OTCPK:GWLLF) of China, Suzuki Motor (OTCPK:SZKMF) of Japan, Mahindra & Mahindra (OTC:MAHDY) of India, Fuji Heavy Industries of Japan (OTCPK:FUJIF), Ford Otosan of Turkey, DRB-Hicom of Malaysia and Mitsubishi Motors (OTCPK:MMTOF) of Japan.
The cost for all these companies would be $451.8 billion which of course is impossible unless you want to kill each Wal-Mart shareholder of a heart attack.
Needless to say, there is no risk of Wal-Mart Motors anytime soon.
Buying all the Auto & Truck Parts companies in the world is a lot easier and cheaper. The profits for the entire industry are almost as large as Volkswagen at $20.4 billion but you only need to invest $249.2 billion to buy all the companies.
Obviously nobody can buy all those companies at the same time, even if you are Wal-Mart. Keep in mind, Wal-Mart has already turned a profit of over $17 billion. They don't have to buy all the companies, just enough to increase profits by $3.4 billion.
As you can see, as you expand to other profitable businesses like gasoline, banking, smartphones, computers and cool cars; things start to get way more complicated for the largest retailer in the world.
By more complicated I mean way more expensive than just buying a piece of land somewhere in Africa and build four walls and a ceiling and filling the thing with a bunch of food, clothes, books and other things everybody needs.
In other words, Wal-Mart needs to get out of the retailing business. I know that is a lot like saying Coca-Cola (NYSE:KO) must get out of the can business but they actually did it and they are currently the most profitable beverage company in the world. It turns out it is more profitable to sell water with sugar than cans of aluminum.
How overvalued is Wal-Mart?
There are only two companies in the world with a price tag of $400 billion or more: Apple and Exxon Mobil (NYSE:XOM) and both come with gigantic profits of more than $40 billion.
GOOG Market Cap data by YCharts
After that select group, there are the $200 billion heavyweights where Wal-Mart is located. Only 19 companies are in this category and you should not invest your cash in all of them.
Profits go from just $7 billion for AT&T which is clearly a short sale candidate to over $37 billion for ICBC which is currently the King of the World according to Forbes.
Could you buy a company that makes as much cash as Wal-Mart for half the price? Sure, in fact, you can buy two: Volkswagen and Gazprom. If you need an excuse to finally open a new brokerage account that allows you to buy shares in Germany and the United Kingdom then you now have two very good excuses to go global. Who cares about the USD? These two are very strong investments in EUR and GBP.
A better trick is to find two companies that make the same amount of cash as Wal-Mart but for only $50 billion. But that is a financial analysis for another day.
Why buy an Apple iPad for $500 (Not an actual cost) to sell it for $505 (Not an actual retail price) when you can buy an Apple iPad for $500 (Not an actual cost) to sell it for 106 weekly payments of $14.16 just like Yamada Denki (OTCPK:YMDAF) of Japan or Carphone Warehouse of the United Kingdom?
You do the math!
Selling Apple iPads within the United States of America, Mexico and the United Kingdom is a great business for Apple. Unfortunately, the retailers cannot make any money selling them. Just ask Best Buy (NYSE:BBY), Dixon Retail (OTC:DSITF) of the United Kingdom and Grupo Elektra (OTC:GLEKY) of Mexico.
The big bucks are elsewhere.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Market Exclusive is a team of analysts and writers. This article was written by Richard Kaplan, one of our group contributors. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.