Wal-Mart Mexico: A Target for Hedge Fund Short Sellers

Wal-Mart Stores Inc. (WMT), the global retail store behemoth which generated more than $443 B in revenues last year, is expected to come under selling pressure today. According to CNBC, this may be due to the New York Times report that came out (on Saturday) implicating Wal-Mart de Mexico in a bribery campaign in 2005 to win market dominance.

Warren Buffett


Wal-Mart Stores Inc. owns 69 percent of Wal-Mart de Mexico (WMMVY), also known as Walmex. It is due to report results on Monday and is expected to post a 14.1% increase in first-quarter profit. According to the CNBC article, Walmex could be the more attractive target for short sellers since it is this part of the business that’s directly involved in the bribery case.

Wal-Mart announced on Saturday that it was “deeply concerned” about the allegations in the Times report and had already begun investigations into its compliance with anti-bribery laws last autumn. According to the CNBC article, this investigation could cost Wal-Mart to devote millions of dollars and enormous amounts of manpower, and could eventually cost some top executives their jobs.

The CNBC article quoted private activist investor, Daniel Yu as being “more interested in shorting the Mexico traded ‘pure play’”. On the other hand, Kenneth Polcari, managing director of ICAP Equities in New York, expects only short-term pressure on Wal-Mart’s stock and doesn’t think that the bribery case will have any significant long-term effect. The CNBC article also reported that “Major institutional investors said Wal-Mart shares might face selling pressure in the near term, especially since the stock has risen about 17 percent in the past 12 months to $62.45, outperforming the S&P 500 index’s 3 percent rise”. In addition, short interest on the stock is very low. According to Date Explorers, just 0.5% of all shares are being borrowed for short sales.

News like this for Wal-Mart can open up good opportunities for both short-term and long-term investors. It can make a great short-sell play for short-term traders, but it can also be used by long-term investors to buy more shares at cheaper prices. Wal-Mart’s stock has experienced an annualized gain of 19.69% since its listing on the New York Stock Exchange in 1972 up to April 2012. That is a big figure when compared to the S&P 500’s annualized gain of 6.63% over the same period. Top hedge fund managers holding the stock include Warren Buffett of Berkshire Hathaway, Boykin Curry of Eagle Capital Management, and Ken Fisher of Fisher Asset Management.

As of this writing, Wal-Mart’s (WMT) stock price is down -4.80% from last Friday’s closing price of $62.45.

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