Monday was a good day in the markets with the S&P 500 up 1% and Toronto up 0.3%. Most of our stock picks were up.
Toll Brothers was up a hefty 4.7% to $31.87. Therefore my recent buys of that stock may have been good timing. It certainly has its risks. Wells Fargo and Bank of America have both indicated that mortgage business will be down noticeably in Q3. Yet both rose today.
Most of the stocks I own (or at least the industries they are in) would seem to be economically sensitive. That is they do better as the economy improves. (I suppose most stocks do netter with the economy but certainly commodity stocks and many individual companies can be disconnected from the economy). One could argue that much of our success in the last 20 months in particular has been based on a certain amount of faith or a bet that the economy was doing better. But I also look at the the valuation of each company and try to avoid being in stocks that are too rich in terms of the P/E ratio (Toll brothers being an exception as it is much more cyclical and still working its way out of a huge profit slump).
The next update will be for Wal-Mart. I try to think of these as companies not just stocks and not just as ratios from financial results.
I find it interesting to try to get a grasp of the size and nacre of the business.
I have read Wal-Mart’s January 2013 annual report and based on that my summary description of Wal-Mart is as follows:
Wal-Mart operates retail stores in various formats around the world based primarily on being a low cost provider of general merchandise and groceries in (mostly) large format stores. It is the largest retailer in the world and groceries account for more than half of its sales. It is the largest grocer in the United States. The company had revenues of $469 billion in fiscal 2013. Total assets were $203 billion and total invested equity was $76 billion.
Wal-Mart’s U.S. stores accounted for 37% of the store count, 60% of the square footage, 59% of sales, 71% of operating income and 49% of assets. International revenue accounted for approximately 57% of the store count, 32% of the square footage, 29% of net sales and 22% operating income and 44% of assets. Sams warehouse clubs accounted for 6% of the store count, 12% of sales, 8% of the square footage, 7% of operating income and 7% of assets.
Operating in 27 countries including the United States with 10,700 stores, 1072 million square feet and 2.2 million employees. Outside of North America it uses about 66 different local banner names. Major Countries outside of the Unites States are (in declining order of store count) Mexico, Central America (Guatemala, Costa Rica, El Salvador, Nicaragua and Honduras) United Kingdom, Brazil, Japan, China, Canada, Africa (largely South Africa), Chile, Argentina and India. No stores in Europe (except the UK) and just twenty in India. It appears from the balance sheet that it owns the great majority of its land and buildings, although it certainly rents a significant number as well.
Wal-Mart may be a boring business and it took over a decade to get back to (and then surpass) its share price high that it set in 1999. In 1999 stupid investors drove the share price far too high. No fault of Walmart’s. I added it to this site in April of 2006 rated Buy at $46.79. It’s up 55% since then. Not spectacular in seven years but certainly not bad at all. Given the recent price increases it may not be much of a Buy at this time. I will evaluate that after I crunch the numbers in the next few days. But I think we can be pretty certain that it will continue to grow over the years. It still has a lot of the world left to conquer.
It was interesting to read today that the Canada Pension Investment plan is a major partner in buying Neiman Marcus for $6 billion. This is a luxury department store chain of some 42 large stores an outlet chain called Last Call. It’s not obvious to me that a luxury department store is a great business. I believe it would sell mostly luxury brands but those same brands would be available in other stores as well like Saks. Perhaps the luxury bands themselves are able to impose rules against discounting and therefore keep the prices up. To my mind it is the various luxury brands that are the better business and not the luxury department stores that sell the brands. I believe people have a lot of brand loyalty but I doubt there is a lot of loyalty to a particular store. But perhaps Neiman Marcus has a lot of in-house brands as well. When it comes to retail it seems like the Dollaramas, the Costcos and the Walmarts that offer the best value to consumers may be the better businesses by far.