Friday, August 18, 2006

Some Interesting and Potentially Useful Information about America's Largest Employer

“I think at this point, with interest rates pausing and the market trading at its lowest ratio of market cap value over earnings in more than 15 years, it's time to look at some of the biggest value plays for safe bets.

First, Wal-Mart. It has increased book value per share every year for 10 years, including the recession year of 2001. At the end of 2000, Wal-Mart's book value was $5.80, with the share price hovering in the $50 range. Now, with book value at a much higher $11.67, the stock price is lower, at $45.

Wal-Mart's average price-to-earnings ratio in the past 10 years was in the 30s. Now, shares are at their lowest multiple-to-cash flows since the 1970s, at 17.”

- James Altucher
Financial Times

Feel free to sue me if this doesn't work out well for you.


Blogger Duck said...

Last quarter was their first on which they did not increase earnings over the previous quarter. It is probably safe to say that WalMart is no longer in the growth company category, it is now in "cash cow" status. Cash cows are valued based on their dividend rate. Their dividend is currently $0.67 per share, with a dividend yield of 1.5% at the current stock price. If they want to increase pps, they should look at increasing their dividend payout.

August 20, 2006 5:10 AM  
Blogger Oroborous said...

I certainly agree that they should increase their dividends. After all, dividends are the only "sure thing" that an investor can expect from buying a stock. Research has shown that, over the past century, the 2d-best way to manage a stock portfolio is to buy only dividend-paying stocks, and reinvest the dividends.
The best strategy is to buy Xeroxes, IBMs, Microsofts, Wal~Marts, Berkshire Hathaways, and the like when they're small, and then wait to become a millionaire. But that's a much harder one to get right.

I also agree that Wal~Mart isn't a "growth" stock anymore. The number of places that they have yet to reach is quite small in the U.S., and their international operations are both more problematic and less-than-robust.

But, they also stand to benefit more than any other retailer from population growth, lower gas prices, and especially from the increasing RFID movement. They're going to squeeze even more profits out of their top-line, even if it's not growing as fast as it used to, and most of their earnings surprises are going to be to the upside.

August 20, 2006 6:54 AM  

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