This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain a...
Boring Is Beautiful
10/02/2008 1:00 pm EST
Charles Carlson, editor of DRIP Investor, says Wal-Mart offers the kind of steady returns investors crave in times like this.
Slow and steady can make you rich. Owning stocks that provide reasonably consistent, albeit sometimes even boring returns can make you rich. And those stocks do exist. The problem is that they are often stocks lacking the type of sex appeal that interests investors.
That’s too bad, because these are precisely the type of stocks that can help you weather markets like we are seeing today. These are stocks that don’t demand too many decisions from you. They don’t get mauled during down markets, nor do they skyrocket during up markets. Rather, they give returns that don’t seem exciting until you realize that you double your money every seven to ten years with such stocks. And over 20 or 30 years, that really adds up.
What are the characteristics of these “easy hold” stocks?
1. You want companies with strong finances so they can stay in the game. That means companies with plenty of cash and modest debt levels.
2. You don’t necessarily need stocks showing 20% growth. Indeed, a company with consistent sales growth of 6% to 8% and profit growth of 9% to 12% per year will do just fine.
3. Easy holds are easy holds for good reason—their moderate price volatility generally does not force you to make too many decisions about selling.
One “easy hold” stock that has held up quite well of late is Wal-Mart Stores (NYSE: WMT). Wal-Mart is the world’s largest retailer, with more than $374 billion in sales in the most recent fiscal year. That’s more than $1 billion in company sales per day. The firm employs more than two million workers worldwide. According to Nielsen estimates, more than 200 million people in the US shop in Wal-Mart each year.
The company’s discount focus has been especially popular with consumers in recent months in light of the sluggish economy and job markets. The firm has beaten earnings estimates in each of the last four quarters. Record profits of $3.50 per share are expected for the current fiscal year ending January 2009.
The stock has demonstrated its defensive qualities during the latest turmoil, with these shares trading [at around $59,] close to their 52-week high of $63.85. The stock currently yields 1.6%.
While I would not expect Wal-Mart to keep pace during the next big upward move in the market, I think the consistency of returns the stock will show over the next several years should be rewarding for investors looking for acceptable returns at moderate risk levels.
Wal-Mart offers a direct-purchase plan whereby any investor may buy shares directly. Minimum initial investment is $250.
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