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Company chosen. Wal-Mart Stores, Inc. is a retail stores company that operates in every US state as well as in over 40 countries around the globe. The company is the world’s largest retailer and operates in the consumables industry. The corporate stock is defensive because the Wal-mart’s beta is only 0.6. The company comprises various superstores, discount stores, supercenters, and neighborhood markets. Also it posses the warehouses (SAM’s club) as well as McLane Company, which deals with food around the world.
Snapshot of operations.
Date: November 12th, 2003
Action: Bought: 1 lot: 1000 shares.
Price: $49.70/share (closing price of the day commissions ignored)
Price paid: $49,700
Reason for buying:
1. The company’s large size make it a reliable company
2. It is a bluechip which is a good choice in times of uncertainty.
3. It’s industry is always in demand regardless of economic conditions (people always buy clothes and food).
4. According to various analyst ratings on the major financial websites, Wal-Mart is a “buy and hold” stock.
5. Earnings per share are expected to be up to $.54 in January, 2004, from $.40 in May, 2003.
Date: November 25th, 2003.
Action: Sold, 1 lot: 1000 shares.
Price: $55.12 (closing prices of the day, commissions ignored.)
Price received: $55,120
Net Gain (loss) realized: $5420 (taxes ignored)
% change: 10.91% growth
Reason for selling:
1. The project due date required the sale of stock regardless of the market conditions.
2. Recent SEC/FBI investigations regarding the Wal-Mart hiring illegal immigrants to the USA from the South America might prove to be true. In this case the company will be forced to pay fines thus deteriorating its financial situation which in turn will negatively influence the stock price.
3. The main analysts downgraded the Wal-mart’s performance 4 days ago. There hardly was any reason except for the investigation, yet because of the “self-fulfilling prophesy” argument it is not bad to sell the shares.
4. WalMart’s growth EPS growth was revised to 12.3% compared to industry 15.8% and sector 60%.
Please refer to the chart in the addendum section for visual presentation of the WMT price movement.
Overall the WAl-mart company is a good long –term investment for a risk-averse or cautious investor like me. Being a blue chip and possessing beta lower than the market, Wal-Mart stores stock is expected to grow somewhat slower than the market, yet also is expected to go down in price slower than the market. Taking into account the fact that I had only one stock selected, the risks already were high because of the lack of diversification of my investment. The fundamental rule of investor is to minimize the risks (even if the potential revenues also fall), and if I were to choose only one stock (as I did) the best idea was to chose something with the least possible risks. Also I attempted to take into account the industry-specifics and the company’s diverse activities. Overall, I can say my investment was successful because I generated the revenue of $5420 over the period of two weeks which represents a 10.91% return on investment for that period. And although there do exist other more profitable investment combinations, I find the investment in WMT financially justified.
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