Dueling Fools: Wal-Mart Bull

I should start out by saying I feel sort of sorry for my dueling partner, John Reeves. He's got the bum side of this argument. So, with a sigh and a nod of the head, let's stick in the blade.

Straight to it
Wal-Mart (NYSE:WMT), the stock, is cheap. Sure, it could always be cheaper, and it's not as juicy a deal as it was a couple of months ago, when I was really salivating at the thought of trying out a few shares. But it's a premium company at a reasonable price, and that is the meat of this bull argument. At a P/E below 20, Wal-Mart is still trading at a multiple that is a long way south of what it usually commands.

Now, you might argue that this is well-deserved, considering that Wal-Mart's growth isn't as supercharged as it has been in the past. Indeed, the following same-store-sales chart shows a gradual but negative trend.

But where thin comps might crucify a lesser company, Wal-Mart's legendary efficiencies of scale enable it to consistently deliver robust EPS growth, often far in excess of the expansion on the top line. (See the chart at the end of this column.)

And these are no mere flukes of financial engineering, as evidenced by Wal-Mart's long record of oversized investment returns, including a 13% return on capital, and a 21% (and growing) return on equity.

The other stuff
Sure, John's going to have other kinds of anti-Wal-Mart stuff to say, but pay no attention. Most of this is tree-hugging, granola-munching, too-fuzzy-beard-growing, North-Face-wearing-while-I-protest-globalization-and-sip-a-latte-outside-my-new-Volkswagen stuff that has little bearing, if any, on an investment thesis.

Let's start by pre-debunking (prebunking?) some of the most common arguments against the company.

Bunk: Gas-shocked consumers have buttoned up their wallets!
Debunk: Wal-Mart and other retailers have outsold analysts' projections despite our national gas pains.

Bunk: Accelerating criticism from labor groups, filmmakers, and others will keep customers away by showing people how evil Wal-Mart really is.
Debunk: People ignore that stuff when they're spending their bucks, and they eventually end up where the cheap prices are. (Wal-Mart is Exhibit A.) Besides, neither the insanely popular Super Size Me nor Fast Food Nation did much to kill McDonald's (NYSE:MCD). On the contrary, it gave that company a chance to reinvent itself and deflect the controversy with its newer, high-margin, healthy menu items, like salads.

Bunk: Wal-Mart is already everywhere, so there's nowhere left to grow.
Debunk: Ever hear of Brazil? Argentina? South Korea? Mexico? China? Or how about the efforts to spruce up Wal-Mart's own same-store sales growth through new fashion lines and higher-end goods?

Room for improvement
Let me hand one to the naysayers. I hate shopping at Wal-Mart. Hate it. There are never enough cashiers, the place is mobbed, and it's simply not worth the frustration. For trips of this nature, I shop at Target (NYSE:TGT). I love Sam's Club, however, and our spending there dwarfs whatever we might have spent at Wal-Mart. Except, of course, that we recently switched to Costco (NASDAQ:COST) because it's closer.

But I still see evidence of success -- being too crowded is a good problem to have, I'd say -- as well as potential. I'm convinced that there's still more room for Sam's. And Wal-Mart can remedy my frustrations with checkout as well as mitigate its exposure to employee benefits by investing in newer-generation checkout technologies, like more widespread use of radio frequency ID. If anyone can figure out ways to save money by doing things more efficiently, and deliver for shareholders, it's the Bentonville Bruisers.

For related Foolishness:

• Has Wal-Mart gone terminal?
• Let's kick Wal-Mart some more, shall we?
• We're in the calm. Was there ever a storm?
• Can Wal-Mart change its image with upscale sales?

Wait! You're not done. This is just a quarter of the Duel! Don't miss the Bear opening argument and the Bull and Bear rebuttals. Even when you're done, you're still not done. You canvoteand let us know who you think won this Duel.

Costco is aMotley Fool Stock Advisorrecommendation.

Seth Jayson doesn't like shopping at Wal-Mart, but he keeps the stock on his portfolio's shopping list. At the time of publication, he had no positions in any stock mentioned here. View his stock holdings and Fool profile here. Fool rules are here.