Wal-Mart's Worries Aren't Over Yet

If Wal-Mart's (NYSE: WMT  ) share price today is any indication, many investors shrugged off signs of strife in the megaretailer's quarterly results. But those shadowy downsides still lurk beneath the cheery earnings.

The discount giant revealed that third-quarter net income increased 6.1%, to $3.4 billion. Earnings came in at $0.95 per share, which included a $0.05-per-share tax benefit. Wal-Mart's sales rose 2.6% overall, to $101.2 billion. International revenue proved especially heartening, surging by 9.3% to $26.9 billion.

However, investors have been concerned with the company's slowing sales in the U.S., and that worry still dogs the retailer. Net sales in the U.S. were up 0.4%, and U.S. comps fell 0.7% (excluding fuel). Wal-Mart still hasn't proven that it can lure additional customer traffic into its U.S. Wal-Mart stores, which has forced the company to consider serious (and surprising) strategic shifts. Still, traffic has improved sequentially during each quarter this fiscal year.

With the holidays approaching, Wal-Mart's unleashing aggressive deals on shipping and cut-priced toys. The Bentonville Behemoth must not only deal with other discounters like Target (NYSE: TGT  ) and Costco (Nasdaq: COST  ) on these fronts, but also with an array of specialty retailers and online merchants such as Amazon.com (Nasdaq: AMZN  ) and Overstock.com (Nasdaq: OSTK  ) .

There's good reason for investors to run from beleaguered and inadequately differentiated retail stocks such as Bon-Ton (Nasdaq: BONT  ) and RadioShack (NYSE: RSH  ) in this aggressive retail climate. Wal-Mart's vastly stronger, but in the near term, investors will nonetheless gain a lot more peace of mind when the retailer starts drawing more customer traffic into its domestic stores. Doing so during the key holiday season is a particular must.

That said, Wal-Mart is a reliable stalwart that can weather differing economic environments. Several months ago, my Foolish colleague Jim Royal recommended buying Wal-Mart shares. The stock now trades at just 14 times earnings, a tad cheaper than Target and a lot cheaper than Costco. Is it time to buy Wal-Mart, despite its continued need to perk up U.S. sales? State your case in the comment boxes below.

Costco and Wal-Mart are Motley Fool Inside Value picks. Amazon.com and Costco are Motley Fool Stock Advisor recommendations. Wal-Mart is a Motley Fool Global Gains pick. The Fool owns shares of Costco and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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