Monday, July 20, 2009

Finding Some Value in Wal-Mart

I know this isn't the most exciting stock out there, but I've been taking a look at Wal-Mart (WMT) recently. I still be believe we're in the midst of consumers "trading down" from more expensive goods and services to discount and value-based companies (my previous posts about this here). Wal-Mart was and still is at the center of this. Wal-Mart has been surprising many as well with initiatives to promote energy efficiency and their decision to support the government's health care plan. Wal-Mart's line has always been that they're doing what's best for the company, and in this case, going green is profitable in their eyes.

I'm more interested just taking a look at the what the stock is doing in this market. The stock is becoming the antithesis of the "green shoots" trade, which is fine because we have enough stocks getting overvalued. Wal-Mart has seen its stock steadily fall while the market has rallied this summer. So basically, we can buy Wal-Mart shares as a hedge against the broad market falling, which could happen (as unlikely as it may seem to some), but at the same time, we're buying a stock with strong and improving fundamentals.

Wal-Mart always generates a lot of cash, and distributes it well through dividends (2.2% yield) and share buybacks (3.5 bil). I see some value here in their shares. Their shares are currently trading at 12.5x forward earnings, which are estimated to climb from 3.56 to 3.89. If the stock continues to fall while the broad market advances, I'll likely start a position.



As always, I'll post my trades here and via Twitter. You can follow my Twitter updates at www.twitter.com/briskycapital
Disclosure: No Position

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