Shopping for Value at Wal-Mart

11/12/2015 8:00 am EST


Legendary investor Ben Graham referred to the stock market as “Mr. Market,” whom he described as a schizophrenic, says Russ Kaplan, value investor and editor of Heartland Advisor.

While it’s true that the market can be nutty in the short-term, eventually it becomes rational. That is why—for your own mental health—I strongly recommend that you don't check the market often.

In my long career in investments, I have seen a lot of pessimism. I think this indicates the bull market will continue.

A major variable that I watch is trading done by the officers and directors of various companies. It’s an important indicator because, in this case, they are buying stocks with their own money. Who knows more about a company than the people who actually run the company?

Right now we are getting a strong buy signal, as insiders are purchasing stocks at their highest level in four years.

Anyone paying attention to the latest business news knows that Wal-Mart (WMT) had third quarter earnings which were below analysts’ expectations.

This news caused the stock to decline 10% on the day earnings were announced. I believe this was a major overreaction and is something you can take advantage of.

One of the horror stories out there is that everyone is now shopping online. But remember, there is still a major place for brick-and-mortar stores.

Meanwhile, there is no doubt that Wal-Mart is in solid financial shape. The best proof of this is that Value Linegives the company a financial strength rating of A++ which makes it the bluest of blue chips.

This strength has given the company the opportunity to do a major restructuring which includes a $1 billion increase in employee wages, renovation of existing stores, and the closing of unprofitable stores. Its initiative in urban neighborhood stores has been a success.

Major holders are the Walton family, which owns 50.6% of the company and Warren Buffett's Berkshire Hathaway, which owns about 2%, a substantial amount. These are definitely people with a long-term perspective.

A price:earnings ratio of 12 means the company’s stock is very undervalued. This is not a short-term holding, but with a secure 3.3% dividend, we can afford to wait.

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