Should I Sell My Wal-Mart?

Bully for me -- I own shares of one of America's biggest and most successful companies -- Wal-Mart (NYSE:WMT). They sure don't come much bigger -- Wal-Mart raked in more than a third of a trillion dollars in its latest fiscal year, and its net income topped $11 billion.

So with such a remarkable performance, has the stock rewarded me? Well, not exactly. At least, not yet. In the nearly three years I've held it (I bought my shares back in mid-2004 for around $53 apiece), I'm underwater by approximately 10%.

So when I think about whether I should hold on or sell, I waffle.

The good and the not so good
Despite the criticism that such a large target attracts, the company has done and is doing plenty of good. It employs (gasp!) 1.8 million people  -- making it the largest nongovernmental employer in the world. I know that not everyone is pleased with employee pay, benefits, and treatment, but then I remind myself that many employees are indeed happy there, and that most are offered at least some kind of health-insurance option, while many employees at other companies go without.

Is Wal-Mart putting smaller companies out of business? I'm sure it has done so. But on the other hand, it is delivering low prices to millions of American shoppers, and with the financial pressures that more and more people face, lower prices can really help ease budgets. In addition, the company is moving in some promising directions, offering organic produce and cotton, as well as compact fluorescent light bulbs.

Hold or sell?
For the time being, I'm hanging on to my shares -- and here's why:

• Selling a stock just because it hasn't moved as much as I wanted it to in the time frame I prefer is silly. As long as the company can increase its sales and earnings, its intrinsic value will continue to grow, and the stock will eventually catch up.
• I don't have a much more compelling place to move my funds that are in Wal-Mart. If I did, that would be worth considering. But right now, with the price-to-earnings (P/E) ratio around 17 when it has been in the 20s and 30s for most of the past decade, Wall Street just isn't giving the stock much credit.
• I've learned from my own experience and that of others that big bucks can be made through patience. For example, look at the track record of Fool co-founders David and Tom Gardner, in the Motley Fool Stock Advisor investing service. Over the past five years, their recommendations are up an average of 61%, versus 24% for the overall market. That's some kind of difference, and it's not just based on one or two lucky picks. It's partly due to their holding on to some great winners, and even re-recommending them over time. In July 2002, for example, David recommended Marvel Entertainment (NYSE:MVL), and it's up more than 680% since then. His subsequent re-picks of it are up more than 380% and 90%.

Looking for more
That kind of result not only has me wanting to hang on to my Wal-Mart shares. It also has me itching for some results like that of Marvel. When David recommended Marvel, he was drawn by (among other things) its high and growing gross margins, its relatively small size, and its appearing to have been undervalued. One way to look for similar candidates would be to use a stock screener. There, running a screen for companies with P/E ratios of no more than 20, gross margins of at least 40%, and trailing five-year annual earnings growth rates of at least 10%, I came up with the following companies:

That's certainly promising, but it's not enough on which to base a buy decision. So a lot more research is needed.

If you, like me, are kind of busy, and not so eager to spend hours up to your ears in financial statements, you might consider letting some trusted stock-hounds do some of the work for you. For me, that means checking out the recommendations in our Stock Advisor newsletter. Many of its winners have lots of room to grow, and many of its picks that are underwater right now are possibly bargain-priced. I invite you to test-drive the newsletter for free for a whole month, during which time you can review all of the recommendations and past issues in detail.

If you'd rather do your own digging for stock treasures, go for it. And if you'd care to chime in with your thoughts on Wal-Mart, please do so on our busy Wal-Mart discussion board. You can read others' perspectives there as well.

Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart, which is a Motley Fool Inside Value recommendation. Marvel and FedEx are Stock Advisor picks. The Motley Fool is Fools writing for Fools.