David Welch
Wal-Mart Stores is the new gold. It is attracting investors who see its shares as a safe haven amid a slowing global economy and volatile growth stocks.
With US same-store sales improving after nine consecutive quarters of declines, investors are betting consumers will continue seeking deals at Walmart and have driven the shares up 24 percent this year.
As a result, late last month the world’s largest retailer briefly became the world’s third-most valuable company before slipping back into fourth place behind PetroChina
.
The shares fell 0.4 percent to $74.28 in New York on Monday.
Some investors are asking how much higher the shares can go.
When consumers became more confident and middle-market retailers regained traction, investors might look elsewhere, said David Abella, a portfolio manager at Rochdale Investment Management.
“In some sense, it is like gold,” Abella said. “It’s a safe bet in an economy like this. If you start to see other retailers do well or consumers appear more confident, then it is time to take gains and get out.”
The US economy was recovering more slowly than some investors expected and some feared a renewed downturn, Abella said from New York.
While that was not the likely outcome, when investors got nervous, Walmart shares went up, he added.
The Rochdale Dividend & Income Portfolio fund owns 57 000 Walmart shares, making it the fund’s fourth-largest holding.
Abella said he was planning to hold the shares because Walmart’s performance had been fundamentally sound and he expected the economy to remain sluggish this year. If the stock rose, he might sell, he added.
Walmart’s market capitalisation raced past China Mobile in May, then passed IBM in June. It slid ahead of Microsoft and PetroChina to third before falling back to fourth behind Apple and Exxon Mobil.
With a value of $251.3 billion (R2 trillion), Walmart is worth the most since March 2004.
All of that has happened after the company said it would co-operate with investigations by the US Securities and Exchange Commission and Department of Justice into allegations that the retailer systematically bribed Mexican officials to open stores more quickly. The investigations became public in April.
Investors seemed to think that the bribery probe would not affect earnings in the near term, Abella said.
Walmart’s price:earnings ratio reached a peak of 16.8 in 2008, said Colin McGranahan, an analyst with New York-based research firm Sanford Bernstein.
The stock traded at 16.2 times earnings now, implying there was still a little more upside to the shares, McGranahan said.
The share performance partly reflects Walmart’s efforts to reclaim its role as a one-stop shopping destination by adding merchandise, working to keep it in stock and lowering costs so it can offer deal-hungry customers lower prices.
Sales rose 8.5 percent in the first quarter to $113bn, while net income rose 10 percent to $3.74bn. US same-store sales rose 2.6 percent.
Even so, some investors were waiting to see more improvement before buying the shares, said Brian Sozzi, an analyst with New York research firm Decoding Wall Street.
Sozzi told clients to get out of the stock on July 30. He was waiting for the shares to drop before recommending investors start buying again, he said. “If we get a sell-off, that could be interesting,” he said. – Bloomberg