Wal-Mart (NYSE: WMT), the world’s leading discount retailer, holds almost any product known to earth. It’s an excellent run business and as the saying always goes:
“If a business is run well, then the stock will soon follow.”
Well Wal-Mart’s stock has been doing quite well for some time now but there is no reason to believe it’s going to stop. In fact, I think Wal-Mart can go much higher making it a strong investment.
Anyone who says not to invest in Wal-Mart because consumer spending has slowed down is idiotic. Yes consumer spending has been down from previous highs but over the past several months it has been steadily increasing. Just look at Visa’s recent robust earnings, which showed a huge boost in consumer credit spending. The fact is even if consumer spending takes longer to recover than expected Wal-Mart is perfectly positioned to weather the storm. The discount retailer owns a diverse product mix that allows it to continue to produce strong revenues.
Adding to this, Wal-Mart has many areas to grow.International operations have been a strong area recently as they have increased stores rapidly across the emerging markets. China now holds 267 Wal-Marts and all-together there are 3,700+ international locations. The company however doesn’t plan on stopping anytime soon. I China believe is still a huge platform to grow due to the rapid increase in middle-class Chinese families, the typical Wal-Mart customers.
Currently Wal-Mart cash flow operations are excellent, they hold a great debt to cash ratio and own an outstanding return on equity of over +20% the past five years. This bodes well for any future growth as they expand throughout China and elsewhere.
Overall the business is great making Wal-Mart a solid long-term investment. Risks obviously are when officially will the economy start to recover however I don’t see these limiting Wal-Mart from rising to $62. The 2.5% yield isn’t a bad selling point either.
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Disclosure: "Long WMT"