Walmart (NYSE: WMT), the world’s largest retailer, has seriously upped its efforts to turn around eight straight quarters of falling sales at its established U.S. stores. It also plans to repurchase close to $15 billion worth of its shares to take advantage of what it believes to be an undervalued stock price and to generate returns for its investors.
The trouble is that Walmart’s share price has been rather stagnant for more than a decade. In the past five years, sales have grown at a compounded rate of 5.9 percent vs. just 3 percent over the past year. This is largely due to the recession and rising gas prices, which have seriously pressured consumers’ purchasing power.
Walmart’s international operations have remained strong, though, and analysts estimate the company’s overall earnings will grow by 10 percent annually in the next five years.
Much of the growth will happen abroad, but Walmart has also been working on boosting U.S. sales through the Web and social media, as well as by introducing a smaller store format called Walmart Express.
Walmart appears to be relatively cheap from a P/E standpoint, and it recently hiked its dividend by 21 percent. Its initiatives to boost sales seem likely to pay off in the long run. Considering the company’s growth potential and the returns an investor stands to get, Walmart’s stock is worth considering.
Ask the Fool
Q: Is now a good time to buy stocks? – N.P., Tucson, Ariz.
A: It may seem counterintuitive, but a slumping or struggling economy can offer more stock bargains than an economy firing on all cylinders. In good times, many stocks get bid up beyond their intrinsic worth. In bad times, they can fall below their intrinsic value.
But stocks, like companies, are not all alike. For any stock you’re considering, you should get to know the underlying company very well, since you’ll essentially be buying a piece of it – and its future. Study its annual and quarterly reports, evaluating its debt load, profit margins, free cash flow and growth rates.
Superinvestor Warren Buffett says he considers the following questions when evaluating stocks: (1) Can I understand the company? (2) Does it have sustainable competitive advantages? (3) Is the management exceptional? (4) Is the price attractive?
There’s rarely a wrong time to buy stocks. You just have to find healthy, growing companies trading at compelling prices, and there are always some, even when the overall market is overvalued.
Q: I’ve been investing in stocks through a direct investing plan for several years. For tax purposes, do I need to save all my paperwork showing purchases, sales and dividend reinvestment information? – S.A., Madison, Ind.
A: Yup. That’s a key downside to direct investing plans (also known as “Drips”) – paperwork and record-keeping. But the upside is considerable: You can avoid brokerage commission costs when buying shares, invest small amounts at a time, have your dividends reinvested in additional shares (or fractions of shares), and over time amass large sums.
Learn more about Drips at www.fool.com/School/DRIPs.htm, www.dripinvesting.org and www.dripinvestor.com.
My dumbest investment
Back in the 1980s, I’d been single for a couple of years and met the guy that I thought was “it.” We married, and I put most of my life savings into a joint investment account. We split up, I lost most of my money and discovered he’d conned lots of people.
The dumbest part of this story was investing my time, heart, faith and assets in what I thought was my future, without benefit of investigation. Love can be blind, naive and stupid. Lots of folks have spent more than I lost for an education, without getting the eye-opener I got for my buck. It took me a long time to save and invest again, and I’ve focused on retirement accounts. – L.S., online
The Fool responds: Love can indeed be blind and naive – when it comes to stocks as well as people. It’s easy to get excited about companies we hear some promising things about, but we shouldn’t plunk our hard-earned dollars into them until we’ve studied them well. With relationships, it’s smart to have lots of discussions about money before merging assets.