Wal-Mart Stores, Inc. (NYSE:WMT) has been a good example of a long-term stock pick, rising 36% in the last five years despite the financial crisis and recession. The third quarter of Wal-Mart’s fiscal year ended in October 2012. Revenue for the quarter was up 3% compared to the same period in the previous fiscal year, and the company was able to increase its margins as well with the result being a 9% rise in earnings. Wal-Mart also repurchased shares, and so the growth rate of earnings per share was even higher. Operating income grew in the U.S., International, and Sam’s Club segments; the U.S. division is currently responsible for 58% of sales and 72% of segment operating income.
At a market capitalization of about $230 billion, Wal-Mart Stores, Inc. trades at 14 times trailing earnings. Combined with its modest growth rates and brand name, that looks attractive though not a screaming buy. Wall Street analyst expectations are for $5.38 in EPS for the fiscal year ending in January 2014, implying a forward P/E of 13. This would be in line with a slightly lower growth rate in earnings per share than the company announced in its last quarterly report, so it is very possible barring macro factors. Wal-Mart is also well known as a defensive stock pick and it does have a low beta, at 0.4.
Warren Buffett likes Wal-Mart Stores, Inc.: the retailer was one of Berkshire Hathaway’s ten largest positions by market value at the end of September, according to the holding company’s 13F filing (find more of Buffett’s favorite stocks). The Bill and Melinda Gates Foundation is another major investor in the stock, reporting ownership of almost 11 million shares for the third quarter of 2012 (see more stocks that Gates’s foundation is invested in). Cliff Asness’s AQR Capital Management increased its own stake by 18% between July and September (check out Asness’s stock picks). Overall, Wal-Mart grabbed the #2 slot in our rankings of the most popular retail stocks among hedge funds.
What about other popular low-price retailers?