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TheDumbMoney (48.81)

Back to the Future with Walmart

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December 03, 2012 – Comments (1) | RELATED TICKERS: WMT , MSFT , INTC

Here is the link to the second post I ever did on Fool.com (May 2010), which was about Wallmart:

http://caps.fool.com/Blogs/is-walmart-wildly-undervalued/384871

It's one of the longest analyses I have ever written here.  In it when WMT traded at $53 I valued it at somewhere between $67 and $77 dollars.  (And I presented wilder estimates as well.)  My general analysis procedure has changed some in the last 2 1/2 years.  For example, I now use the WACC as my discount rate, rather than ever attempting to assign a discount rate.  This also more clearly shows how a company's WACC decreases (such as in a ZIRP environment, assuming it refinances higher interest rate debt), it's value goes up, if other factors are held equal.

I raise my old analysis because how here we are 2 1/2 years later and WalMart trades at $71/share. 

What's interesting though is not that I was right that Walmart could move higher, and was worth more (maybe it's not, despite the price, but I doubt it).  What's interesting is all of things that had to go right for this to happen, specifically:   1) reversal of the trend in declining same-store sales; and 2) better ability to compete online with Amazon.com.  I had assumptions about these things, but how grounded in reality wre they?  It is hard to know, though in hindsight things seem clear.

That's where we are now on INTC and MSFT.  They are like WMT trading at $47 shortly after I wrote this.  For me to be right on those, NO MATTER THE APPARENT UNDERVALUATION, I have to be correct in my substantive business analysis which says thaf businesses will eventually upgrade to Win8 (or complete unfinished upgrades to Win7), INTC will find a way to compete in mobile chips, and consumers will embrace Windows phones at least to some degree. 

MSFT is really troubling to me, on that score.  It is following the script of HPQ to some extent -- tens of billions in share buy-backs, idiotic acquisitions (Skype).  I think before it's over, at least 7% of the value of that multi-billion Skype purchase will get written off.  And they already have had one multi-billion writeoff that led to a quarterly loss. 

That is why as I have said before, I'm watching MSFT and INTC through about March or April of 2013, and if I don't see some indication of hope on the fronts above, I may just cut bait and move on.  Hope is not a strategy.  I sold HPQ at $22, way above its present price in the low teens, precisely because I don't think hope is a strategy.  I am already down some on my MSFT and INTC holdings, but as always my primary care needs to be:  don't LOSE money.

 DM

1 Comments – Post Your Own

#1) On December 03, 2012 at 4:45 PM, TheDumbMoney (48.81) wrote:

meant to write "75% of the value..." not 7%.  Also lots of other typos.

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