After running a just-for-fun post a while back on a Redneck-themed stock portfolio, some readers suggested adding Wal-Mart (WMT) to the mix.
A Walmart in Beijing, China (Photo credit: galaygobi) (by company policy, most items in Chinese Wal-Marts are made in America... no, just kidding)
The portfolio is composed of a certain type of company active in sectors that cater to the great underbelly of America: beer, salty snacks, trailers parks and smokes. Another thing, they all pay a reasonable dividend.
Wal-Mart certainly fits this criteria. Within its neat aisles, there is everything a good ole boy could want: cheap threads, fishing gear, guns, fine particle-board furniture and home decor items, and of course, beer.
As a value investment, WMT isn’t too shabby: reasonable price to earnings, good return on equity, and good prospects for growth.
However, on reviewing the fundamentals, one number in particular jumps out: Wal-Mart stock has a paltry, measly 31% ownership by institutional investors.
Other NYSE stocks get more love: a normal range is from 60 to 80 percent. Some of the smaller-cap high-growth stock even sport a number of 99 percent.
But not Wal-Mart.
WASHINGTON, DC - AUGUST 05: Asantewaa Nkrumah-Ture (L) joines hundreds of other people from several different labor rights groups as they demonstrate in the street in front of the Walmart Federal Government Relations offices August 5, 2011 in Washington, DC. Organized by the Jobs With Justice 2001 Conference, the demonstrators called on Walmart to secure decent, living wage jobs during their attempt to build four new stores in the District of Columbia, and not to retaliate against associates who join labor organizations. (Image credit: Getty Images via @daylife)
“The World’s Most Hated Company”
Well, maybe “hate” is a strong word. Maybe saying that Wall Street ‘disdains’ or ‘ignores’ could be more appropriate?
No, hate is about right. According to varied articles in the intertubes and even recent documentaries, “Wal-Mart [is the] World’s Most Hated Company“.
CNN Money: Most Hateable Companies (Not Named BP)
Motley Fool: Does Wal-Mart Deserve To Be Hated?
Wal-Mart has surely had its share of troubles. From accusations of unfair wage practices, to charges that it is destroying neighborhood stores, to the most recent charges of corruption and bribery at Wal-Mart Mexico.
Could it be that the mighty and powerful of finance are sensitive to the sentiments of the great unwashed? Maybe, let’s see..
Institutional Investors
The so-called “smart money”. You now, mutual funds, private equity advisors, endowments, mega-pension funds, all folks with lots of clever people in the room, and they’re supposed to know how to pick stocks, right?
The financial mainstream will allow that heavy institutional ownership of a stock can be a good thing. With their large share positions, institutions have been known to push for shareholders’ interests with board activism, keeping CEO excesses and general corporate stupidity in check. No doubt this happens.
Large institutions also engage in promoting the stocks in which they have a large stake. Their slickly attired analysts regularly infest the financial media cable channels to talk up their book, as it were. Little Mom-and-Pop investors, in theory, benefit from all this stock promotion.
On the flip side, in a sudden bear market, large institutional investors are as quick to pull the sell trigger as any emotional small retail investor. Some large mutual funds have to quickly dispose of assets to meet redemptions, while hedge funds may have to raise cash to meet margin calls on other short positions.
Or, they may depart a stock en masse, on the strength some particularly bad piece of news.
On the contrarian side, noted value investors prefer a stock which hasn’t been already bid up like an Arabian stallion at a Kentucky horse auction. Very low institutional ownership and low or zero analyst coverage in a small-cap solid company are signs of a bargain, with a fair-market valuation by the general market having not yet occurred.
Should be said that it does take some measure of skill and courage of conviction to stand against the big boys. Someone with big huevos.
Someone like Warren Buffett.
Do As Buffett Does
In the Personal Finance investing space, there is an abundance of chatter on Warren Buffett. Even a good number sites named after him. Buffett is held up as the epitome of the savvy value investor. That’s fine. With Berkshire Hathaway stock trading at over 120,000 dollars per share, I’d say it’s a well-deserved reputation.
Scrolling down WMT’s Google Finance web page, there’s a handy link in the lower right hand corner that leads to an MSN Money page, detailing just who owns how many shares.
Turns out that Buffett’s Berkshire Hathaway own a nice wad of 39 million shares, or 1.1% of the company. Now, Buffett is only #4 on the list, behind Vanguard Group owning by far the largest chunk, at 82 million shares.
I just mentioned Buffett because it came as a mild surprise to discover that he owned a good slice of Wal-Mart. I’d just never heard of it, or could even conceive it. Lots of the negative sentiment for WMT comes from the left, and Buffett is sometimes seen as a a bit of a limousine liberal with his views on the personal income tax. There’s a fair bit of print about his investments in Burlington Northern SF railway. His purchases of Bank of America, Gillette and Coke are well-documented. But Wal-Mart? He even doubled his stake a couple years ago, to the current 39 million shares. But even Buffett himself doesn’t talk about it much.
(just for fun, here’s a link to all of Buffett’s major holdings)
The thought occurred that perhaps Walmart’s sheer size in terms of a $200-billion-plus market capitalization means lower institutional participation. That’s not the case.
Behemoths like ExxonMobil, Chevron and Microsoft all sport numbers from the fifties to the mid-sixties.
So, what’s the basis for this aversion? Maybe WMT is just not that an exciting an investment.
By the Numbers
Just for fun, I looked up a random mid-cap company to plug into the spreadsheet alongside Wal-Mart, Target and Costco Wholesale.
The Cooper Industries Inc (COO) is an unremarkable maker of medical lenses and contact lenses, but the big boys are apparently and positively infatuated with this stock. With a whopping 98% institutional ownership, COO is getting a lot of love.
Apparently a darling of mutual funds and endowments, its numbers compare poorly to Wal-Mart, Target or Costco.
Forgetting about Cooper for now, let’s take a look at Target and Costco. Similar market valuation at around 38 billion, but Costco has the higher 5-year sales growth, 8.13% vs. 3.27% for Target. Target is better than Costco on earnings per share, net profit margin and a more conservative price to earnings ratio (13 vs 26).
But in terms of value, Wal-Mart is better than either one of them: higher earnings per share, return on average assets and return on equity. And higher dividends.
And finally, in another measure for long-term investments, I like to look at the low point after the 2008/09 market crash. Look at row 25 in the spreadsheet above: an investment in Target and Costco would have declined by 55 percent. Wal-Mart only suffered a 21 percent decline.
As for Cooper Companies, it was totally bushwhacked in early 2009, losing almost 87 percent in value.
So much for “smart” money.
Vote With Your Wallet
Wal-Mart wouldn’t be around if customers didn’t patronize it. Big Retail is a highly competitive sector where the nimble survive and the stupid get eaten. WMT has has proven that it can compete with the big-box warehouse model, in retail grocery, and in the standard supercenter space.
Where it excels though, is in attracting the weirdest and most fantastic denizens of the human genome pool.
We don’t always shop at Wal-Mart. We also like ALDI, a local grocery store chain and the Oklahoma Food Cooperative. But for the basics, WMT is a good fit.
Just like Warren Buffett, we set politics aside and send our money where it will bring the most value. While our investment won’t be huge, I’ve put in small limit order of 50 shares at $58 a share. I hope it gets filled before the next Redneck Dividends update.
What do you think, readers? Do you “hate” Wal-Mart, or do you think they provide good products at a reasonable value?
(as always, the preceding was provided for educational and entertainment purposes only, not meant to be investment advice. This is just a blog amongst million of other blogs. Do your own due diligence, and make your own mistakes).
“Where it excels though, is in attracting the weirdest and most fantastic denizens of the human genome pool.”
Overkill much? I don’t have any problem shopping at Wal-mart. I do agree they don’t get the love that they are due, but that is the prerogative of others though I guess. The ones that I have lived by always seemed to get plenty of traffic though.
Roshawn @ Watson Inc recently posted..Why Do The Rich Get Richer?
Overkill? Not if you’ve seen some of the pictures of Walmartians. Or better/worse yet, seen them in person.
Anyway, people can choose or not to shop there.
No, I don’t hate Wal-Mart. They provide goods and services that we need at a great price. I have a few shares of their stock and don’t plan on selling them.
This Aggie Saves recently posted..I’m Guilty.
I love Wal-Mart, but then I’m a redneck. What’s not to like about lower prices and more money in your own pocket. I wouldn’t go shopping for dress clothes there, but food, toiletries, etc. …. it’s hard to find better deals elsewhere.
The Biz of Life recently posted..Does Government Spending Create Economic Growth?
Hi Grouch – I’m an apprentice redneck of sorts, but I like Wal-Mart just fine for some things.
there are a lot of people that I know who “hate” wal-mart. That’s fine with me, but too bad for them – I shop at wal mart and am not too worried about who knows. They have what I need when lots of other places dont (specifically, fels naptha soap and washing soda) and have reasonable prices. I’d consider buying stock in them if I was in the market for some stock purchases.
Jeff @ Sustainable Life Blog recently posted..April 2012 Monthly Review
Hi Jeff – around here, they’re the only ones who stock Cafe Bustelo, our favorite Cuban coffee. And Sam’s Club has all the good cheeses.
We shop at Walmart and it saves us money. So I like them and I don’t care what the investors of the world say!
I was taught to invest in what you use. If you like/use a product, then invest in it becuase that means it’s getting used and may do well…. I can see some fault in that logic now, but it’s not awful logic.
TB at BlueCollarWorkman recently posted..Reversing a Bird Invasion
Hi TB – from all the crowds on the weekend, WMT does a rip-roaring business. The supercenter closest to us has also a super nursery section in the springtime. I’ve gotten a couple fruit trees there for 20-25% less than other places.
I believe that Wall Street hates banking stocks and auto stocks even more. Bank of America and Ford both blew earnings out of the water in recent reports and ended up down more than 4% apiece. Wall Street sure does shrug off most good news but is more than happy to pounce on anything negative. There’s big manipulation with those stocks. I think Wal-Mart is just the fear that they can’t continue to grow.
Money Beagle recently posted..A Bittersweet Net Worth Milestone
Good point, MB.
I got that exact argument in a college business class, that Wal-Mart couldn’t possibly sustain the growth rate. I remember that the professor said that quite smugly.
That was more than twenty years ago. Wished I’d bought back then.
I love Wal-Mart too. I’m attracted to it because of its prices and some of its “own” brands are good value for money. Plus, they sell almost everything, which is one stop shopping at its best.
Dannielle @ Odd Cents recently posted..Comment on The Rights of Workers by Lisa@My Borken Coin
Hi Dannielle – Wal-Mart’s Great Value store brand is quite good for some things. For parmesan cheese though, it’s quite awful. It’s probably the sweepings-up from some Wisconsin cheese factory.
I shop at Wal-Mart for our hygiene products but I really can’t stand to go to that store. It’s unbelievable how people just leisurely meander through that store like they have nothing better to go do.
There is nothing wrong with saving money but Wal-Mart has changed our food industry a lot (for the worse) and my wife and I have chosen not to support them (much like we’re choosing not to eat at fast food for the rest of the year).
WorkSaveLive recently posted..Why We Didn’t Sell Our Car on Craigslist
Maybe in small town, shopping is what’s there to do for a diversion.
I have a Wal-Mart shopping strategy to deal with those pesky meandering shoppers that park their carts *right* in front of what I want to get. I leave my cart at the top of the aisle, and then aim laser-straight to what I need to get. I sometimes even have to reach in with an “excuse me” past the blockers.
I think all stores have their place. We shop at Walmart but not that often. We get some cheap pet supplies there and the odd household item. They do have some good deals but they aren’t always better than the next shop. We do most of our shopping at Superstore, a large store chain here in Canada.
Miss T @ Prairie Eco-Thrifter recently posted..My Story on How to Successfully Take Courses While Working Full Time
Hi Miss T – oddly enough, Wal-Mart stocks some premium food items at a great price, like our favorite Cuban coffee Cafe Bustelo, and some Italian cheeses.
I have an in-law that won’t shop at Walmart because he thinks they treat their employees unfairly. My take on it is, people can choose to work there, or not. If it is truly unfair, then people wouldn’t work there, and that would force Walmart to change the working conditions. If people choose to work there, well, then nothing is causing them to change.
I buy my groceries (and lots of other stuff too) there – My grocery bill would probably be 25% higher if I went anywhere else.
So, My wallet likes Walmart at least.
Travis @Debtchronicles recently posted..What’s your 0.2?
Hi Travis — your in-law is certainly entitled to an opinion, one that in this case might not be borne out by Wal-Mart employees. In our area, Wal-Mart has trouble retaining employees, but not necessarily because of pay scales or benefits. It could be that these low-paying jobs have a fast revolving door. At one point, cashiers were even recruiting customers. Maybe the employees were getting a referral bonus.
We’d shop there, but not too many in Los Angeles. We have to visit their expensive french cousin instead.
Brent Pittman recently posted..A Free Ride to Medical School
Ah… Tar-jay… Took me a second before I figured it out.