My worthy adversary and Fellow Fool Michael Leibert agree on one thing: "Wal-Mart's
Wal-Mart's stagnant stock price is more due to the trading environment for large-cap stocks than any supposed reduction in competitiveness. A quick survey of the landscape will show you that many Motley Fool Rule Maker candidates trade far below peaks reached around 2000. Coca-Cola
As for the erosion in Wal-Mart's low cost advantage, the numbers don't show it. Return on equity is still more than 20% and only slightly below where it stood in 1999. Gross margins are up more than 3%, while net margins of 3.2% stand exactly where they did when the dot-com bubble was reaching its heights. And cash flow generation is as strong as ever.
In terms of the international failures in Germany and South Korea, Wal-Mart is quickly learning that its operating model is more compelling in developing countries like Mexico and China. I take management's exit of underperforming markets as a sign it is willing to fess up to past mistakes, something other companies may want to take note of. Sure, domestic growth may be slowing, but this could turn into the cash cow for overseas expansion, much like YUM! Brands
Wal-Mart does have work to do to repair its tarnished image, but I see this short-term malaise as an opportunity for long-term-minded investors to get in at even more attractive levels. The company isn't growing at 15% annually any longer, but low double digits is just fine when you consider the moderate valuation and operating stability.
Wal-Mart, Coca Cola, and Microsoft are Inside Value picks.
Fool contributor Ryan Fuhrmann is long shares of Home Depot and Microsoft, but has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.