Investing: Wal-Mart is strong but faces uncertainties
Question: Is my Wal-Mart Stores Inc. stock going to revive?
Answer: The world’s largest retailer fared well early in the recession as consumers became more budget-conscious.
Since then, however, persistently high U.S. unemployment and some uncharacteristic mistakes in merchandising have slowed Wal-Mart down. Indicative of its struggles have been several key executive departures.
The retailer’s shares are up 1.1% this year so far, after dropping 4.7% last year. The company is in excellent financial shape but must cope with continuing economic uncertainties, including the potential for deflation in grocery prices.
International growth is crucial for Wal-Mart. The company has more than 8,500 stores in 15 countries, nearly half of them in the U.S. About one-fourth of its profit comes from overseas.
The company has offered to acquire Massmart Holdings, which has stores in 13 African countries, for more than $4 billion. But labor unions in South Africa, where Massmart is based, have fought the deal.
Among recent moves in the U.S., Wal-Mart has begun selling Apple Inc.’s iPad tablet computer as well as marketing cellphone service with no contract and a flat monthly fee. The company also has partnered with health insurer Humana Inc. to offer a Medicare Part D prescription plan at one price nationwide.
On the expense side, Wal-Mart recently said it would no longer make profit-sharing contributions for all employees but instead would match a worker’s own 401(k) contributions of up to 6% of pay. The company faces a number of employee-discrimination lawsuits.
Wall Street firms on average rate Wal-Mart a “buy,” according to Thomson Reuters. That includes 14 “strong buys,” nine “buys” and seven “holds.”
Analysts on average expect Wal-Mart’s earnings to increase 10% this year and next year, compared with projected industrywide increases of 52% this year and 20% next year.
• Stock fund outranks most of its peers
Question: Fidelity Low-Priced Stock fund was recommended to me. Do you consider it a good choice for my retirement account?
Answer: Star portfolio manager Joel Tillinghast has run this $30-billion fund since its inception in 1989 and has more than $1 million of his own money invested in it, indicating he is on board with the interests of shareholders.
This low-volatility, low-cost fund, which owns more than 900 stocks, emphasizes companies with share prices of $35 or less and keeps about one-third of its portfolio in foreign firms.
The fund has earned a total return of 15% in the last year, ranking it above average among so-called mid-cap blend funds. Its three-year annualized decline of 0.6% places it in the top 15% of its peers, and its 10-year annualized return of 11% puts it in the top 1%.
Consumer-service stocks account for 22% of the fund’s portfolio value, with other concentrations in consumer goods, healthcare and industrial materials.
The fund has a relatively low annual expense ratio of 0.99%. A $2,500 minimum initial investment is required to buy shares, but there is no sales charge.
Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com
