To Buy or Not To Buy: A Wal Mart Story

Doug French over at BloggingStocks.com commented on a story in the New York Times about Wal Mart. With their inabilty to cater it’s designer women’s clothes to their demographic and the addition of Plasma Screen TV’s and other “high end” electronic equipment, French believes this could be a chance for investors to load up on weakness in the stock.

In late October, Wal Mart hit a 52 week high of $52.15 and subsequently took a nose-dive to 46.50. Was the selloff just profit taking or is there something deeper that should be considered?

The real problem with Wal Mart isn’t their offering of high-end electronics and designer clothing. It’s how they treat their employees. Jim Cramer talked about this a few days ago on his Real Money Radio Show. He made a good point. When you are shopping for a $5000.00 television, who are you going to want taking care of you? Some kid who is barely making $10 an hour in the electronics section of Wal Mart or a specialist in a store like Best Buy or Circuit City where they are trained specifically to handle high end merchandise and know the ins and outs of those products. I’ll take the latter, thank you.

The second thing wrong with Wal Mart is their growth. At only 11% growth, the stock is still overvalued here. With the decline in same store sales over the last few months, and December predicting to be flat the stock has nowhere to go but down. I don’t see an upside for several months here. If you do want to buy it on weakness you have a while to wait. Should the holiday season turn out the way they are predicting, I don’t think you buy until it comes down much further, say around $40.00

Wal Mart is too aggressive in price cutting to the point they have nearly put their suppliers out of business.

If you want best of breed retail, buy SHLD here. Sears Holdings trades at only 20 times earnings, yet it has 22% growth. In my book that puts the stock at a buy with a target of $280.00

Wal Mart looks cheap at only $45 but not when you compare it to SHLD. Sears will hit $200 before Wal Mart is back to $60.

Thumbs down on Wal Mart, Two thumbs way up on Sears.