Wal-Mart like gold for investors


The world's largest retailer is attracting investors who see its shares as a safe haven amid a slowing global economy and volatile growth stocks. With U.S. same-store sales improving after nine straight quarters of declines, investors are betting consumers will continue seeking deals at Wal-Mart and have driven the shares up 24 percent this year.

As a result, late last month Wal-Mart briefly became the world’s third most valuable company before slipping back into fourth place behind PetroChina Co. Wal-Mart fell 0.4 percent to $74.28 Monday at the close in New York.

Now some investors are asking how much higher the shares can go. When consumers become more confident and middle-market retailers regain traction, investors may start looking elsewhere, according to David Abella, a portfolio manager with Rochdale Investment Management.

“In some sense, it is like gold,” Abella said in a telephone interview. “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 economy is recovering more slowly than some investors expected and some fear a renewed downturn, said Abella, who is based in New York. While that is not the likely outcome, when investors get nervous, Wal-Mart shares go up, he said.

The Rochdale Dividend & Income Portfolio fund owns 57,000 Wal-Mart shares, making the holding the fund’s fourth largest. Abella said he plans to hold the shares because Wal-Mart’s performance has been fundamentally sound and he expects the economy to remain sluggish this year. If the stock rises, he may sell, he said.

Wal-Mart’s market capitalization raced past China Mobile in May, passed IBM Corp. in June and then 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, Wal-Mart is worth the most since March 2004.

All of that happened after Wal-Mart said it would cooperate with investigations by the 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 seem to think that the bribery probe will not affect earnings in the near term, Abella said.

Wal-Mart’s price-to-earnings ratio reached a peak of 16.8 in 2008, said Colin McGranahan, an analyst with New York-based research firm Sanford Bernstein & Co. The stock trades at 16.2 times earnings now, implying there is a little more upside to the shares, McGranahan said in a telephone interview.

The share performance partly reflects Wal-Mart’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 $113 billion. Net income rose 10 percent to $3.74 billion. U.S. same- store sales rose 2.6 percent.

Even so, some investors are 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’s waiting for the shares to drop before recommending investors start buying again, he said in a telephone interview.

“If we get a sell-off, that could be interesting,” Sozzi said.


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