Wal-Mart Stores, Inc. (WMT), The Procter & Gamble Company (PG): Should We Follow Richard Pzena Into These 2 Stocks?

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Richard Pzena is one of the most successful value investors, managing nearly $20 billion as of April 2013. In the past one year, his Large Cap Focused Value fund’s gross annualized performance was 18.9%. Recently, he initiated long positions in two large cap businesses, Wal-Mart Stores, Inc. (NYSE:WMT) and The Procter & Gamble Company (NYSE:PG). In the first quarter, he bought 8,193 shares of Wal-Mart Stores, Inc. (NYSE:WMT) worth nearly $640,000. He also purchased 10,290 shares of The Procter & Gamble Company (NYSE:PG) worth nearly $820,000. Let’s take a closer look whether or not we should follow Richard Pzena into those two large cap stocks.

Wal-Mart Stores, Inc. (NYSE:WMT)Wal-Mart is not expensive now

Wal-Mart Stores, Inc. (NYSE:WMT) is the global leader in retail stores with its traditional pricing strategy — “Everyday low prices.” It operates in three main business segments: Walmart U.S., Walmart International, and Sam’s Club. Most of its revenue, $274.5 billion, or 58.9% of total 2012 revenue, was generated from the Walmart U.S. segment, while Walmart International and Sam’s Club contributed $135.2 billion and $56.4 billion in revenue in 2012. In the past four years, Wal-Mart Stores, Inc. (NYSE:WMT) has recorded 7.3% annualized growth in net sales to $466 billion while its EPS has grown at a much higher rate of 11.1%. In 2012, its EPS was $5.02.

Wal-Mart Stores, Inc. (NYSE:WMT) has consistently increased its dividend payments. In the past 10 years, the dividend has been raised from $0.36 per share in 2003 to $1.59 per share in 2012. The company is expected to increase its dividend by 18% to $1.88 per share next year. In 2012, the company paid out $5.4 billion in dividends and repurchased $7.6 billion worth of shares. At $79 per share, Wal-Mart Stores, Inc. (NYSE:WMT) is worth around $259.4 billion. The market values Wal-Mart at a reasonable EV multiple of 8.45. The dividend yield is decent at 2.40%.

Procter & Gamble might be worth $125 in two years

The Procter & Gamble Company (NYSE:PG), one of the largest global consumer goods company, is the owner of famous brands including Tide, Pampers, Gillette, and Dawn. In the recent Ira Sohn conference, famous hedge fund manager Bill Ackman was quite bullish about the company. The gross margin of every business segment was quite high, being in the range of 40% to 65%. The business holds the number one global market share in most of its product categories including Blades & Razors, Diapers & Wipers, Fabric Care, Hair Care, and Paper Towels. The company still relies heavily on the developed markets, as the developing markets accounted for 40% of its total revenue while its peer, Unilever N.V. (ADR) (NYSE:UN) derives as much as 55% of its total revenue from emerging markets.

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