Wal-Mart Stock: A
Buy at 2008 Prices?

The stock of the world’s biggest retailer has performed terribly since the bear market rally started two years ago. What’s up with Wal-Mart Stores, Inc. (NYSE/WMT) stock? Is it a buy at 2008 prices?The stock of the world’s biggest retailer has performed terribly since the bear market rally started two years ago. What’s up with Wal-Mart Stores, Inc. (NYSE/WMT) stock?

In March of 2009, Wal-Mart stock was selling at $50.00. Today, it trades at only $53.00 a share. The market in general has gone up over 90% since March of 2009. Wal-Mart stock is up only six percent. Does that make the stock a bargain? After all, you could buy Wal-Mart today for the same price it was trading at in early 2008.

Hold on. The stock market is a leading indicator, not a lagging indicator. The market is telling us that problems lie ahead for Wal-Mart and, as an economist, I’m trying to figure out what problems the market sees for Wal-Mart and low-end retail.

And I think I know the answer: the small store concept will not work for Wal-Mart.

In case you haven’t heard, Wal-Mart is planning to open 40 “smaller concept” stores this year. These stores will be about 15,000 square feet in size (about one-tenth the size of the regular 180,000-square-foot store) and include a pharmacy and grocery area.

Remember Sam’s Club? That was a concept by Wal-Mart of an even bigger Wal-Mart big-box store. Sam’s Club did not even come close to matching the success of the Wal-Mart brand. In fact, many Sam’s Club stores closed. Now the stock market is telling us that it may not like the smaller-store concept either.

Below, you’ll find a price chart of Wal-Mart stock. Investors who bought the stock as far back as the spring of 2008 have yet to make real money. I don’t see opportunity in the stock right now and I would not be a buyer. If I owned the stock, I would consider selling it.


Michael Personal Notes:

Someone…please tell Alan Greenspan to retire to an island or somewhere far away so we never have to hear from him again. This guy is a piece of work and he just won’t go away. It’s amazing to me that the media follow him.

In the summer of 2004, he brought interest rates down to a then 40-year low. As I wrote back then, this was a huge, huge mistake. By bringing interest rates so low, Greenspan had a big hand in creating the housing bubble. Once air started coming out of the bubble, Greenspan went on record as saying that the housing downturn would be isolated and would not affect the rest of the economy. Meanwhile, the housing bust caused the worst recession since the Great Depression.

Now, in an article published last week in International Finance, Greenspan infers that the U.S. government should pull back on its “activism” and the economy could heal on its own. I was not a big fan of the government bailing out private companies, but let’s face the facts. If the U.S. did not bail out Wall Street and the banks at the height of the financial crisis, the damage to investors, consumers and the economy in general would have been much worse.

Actually, in retrospect, if the government had more banking oversight, if the government had monitored the mortgage market, the real estate bubble would have never have grown so big as to cause so much damage when it burst.

Where the Market Stands; Where it’s Headed:

We’ve had a few e-mails from customers asking for the difference in my references to “immediate-term” and “short-term.” Immediate-term, in this column, means now. Short-term is six months to one year out. Hence, when I started writing in this section of PROFIT CONFIDENTIAL in late December of 2010 that I was immediate-term bullish and turning short-term bearish, I was sounding the alarm bell for my readers well in advance.

In the immediate term, I expect the bear market rally to push stock prices. In the short term, once the bear market convinces the great majority of investors that the worst is over for the economy and the stock market is a safe bet again, the bear will take the chips off the table and there will be trouble.

The Dow Jones Industrial Average opens this morning up 5.5% for 2011.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002. Gold bullion was trading at under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories gained in excess of 100%.