Four Reasons Wal-Mart Is at a 2-Year High

According to Daniel Gross at Slate.com, Wal-Mart's stock is at a 2-year high (see chart above) because:

1. Wal-Mart sells necessities, not discretionary items. The overwhelming majority of its sales are not impulse buys. Even in a recession, most people don't drastically reduce their spending on staple groceries, light bulbs, or diapers.

2. In a pinched economy, consumers are embracing their inner skinflint. And Wal-Mart is a penny pincher's paradise.

3. The economic-stimulus package President Bush signed earlier this month seems to have been designed to help Wal-Mart. It funnels cash to individuals making less than $75,000 or to families making less than $150,000, many of whom might shop at Wal-Mart. $300 really isn't enough to put a dent in a payment for a new car or to pay off a mortgage, but it might be enough to spur a shopper to throw a few extra goodies into the Wal-Mart shopping cart.

4. As the U.S. economy idles, the rest of the world is still growing quite rapidly. And Wal-Mart finally has meaningful international sales to report. In 2003, international sales were just 16.7% of overall revenues. But thanks to aggressive expansion in Mexico, China, and elsewhere, Wal-Mart has become an increasingly multinational corporation. In the 12 months that ended in January 2008, international sales rose 17.5% and constituted 24.2% of overall sales.

Comments

[User 129099:]

The chart in this article is a 6 month one. The 2 year chart shows the current stock price is at the top of a 2 years trading range. So, I guess this is the time to sell WMT if it can't break out the resistance of this trading range. It was $51.58 on 10/27/2006. WMT made two attempts to break out the resistance in the past 2 weeks. But, it only reached $51.48 twice. I sold my holding yesterday at $51.32 and will buy back if it does break out.

2008 Feb 27 09:26 AM

[frcf:]

Even though it is at a 2 year high (or possibly atop its trading range), it's great value at p/e of 14. During the last recession they were actually posting 4-5% same-store-sales, while other retailers were suffering. So it might actually experience a well deserved p/e expansion at last.

Many guru investors like it too: www.dataroma.com/m/sto...

2008 Feb 27 12:36 PM

[selene:]

I just don't see it - sorry. They are cutting back US expansion because just about everyone who wants to live near a Wal-Mart already does. I'll be surprised if we see much of any bump anywhere from the attempted stimulus, most will just go to pay off credit cards. (BTW if we had extended unemployment benefits or food stamps, now THAT might have helped WMT, COST, TGT. People living paycheck to paycheck probably would spend their extra on near-necessities.)

2008 Feb 27 01:10 PM

[jerico:]

The last time the government passed out money, Wal-Mart saw 32% of it spent in their stores. It was such a boost in same-store sales that there was some difficulty beating same-store sales the next year.

Referencing international expansion, it is going to equal U.S. sales in 4 or 5 years. This will make Wal-Mart a Trillion Dollars in sales in 10 years or less. Can you say "Trillion"? What kind of economy of scale will this provide? Nobody knows for sure, but the potential is enormous.

2008 Feb 27 05:17 PM