It is times like this that try investors' souls and going to Wal-Mart (WMT) may just provide some comfort. Every portfolio needs some reassurance in this brutal economy and as we have mentioned before, consumer staples are the only game in town right now to calm things down.
Based in Bentonville, Arkansas, Wal-Mart has been one of the most stable stocks over the last few years. It has been down right boring but right now we believe boring is okay. Look at the chart below however and while it has not moved a whole lot over the last few years, it is still in an uptrend.
The stock is trading around $52 and current year earnings are estimated to be around $4.50 per share. Looking to next year, analysts currently are estimating earnings to come in at $4.89 per share on average.
With the economy struggling along as it has for quite some time, Wal-Mart stands to benefit as people who have fallen on hard times look to save a few bucks. On the other hand, should the economy start to improve in the foreseeable future, we believe Wal-Marts current customers will have more disposable income to spend and drive margins higher.
At current levels, Wal-Mart is trading around 10.5 times next years earnings estimates and has a respectible return-on-equity of 21%.
The stock also pays a nice dividend which yields nearly 3%. If you want to go the conservative route, consider buying the stock at the current levels and selling a March at-the-money call ($52.50 strike price). This will get your cost down under $50 and if called away, you would make over 8% on your capital in about 6 months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.