WAL-MART MIGHT BE GOOD STOCK TO BUY

Like so many other of today's major companies, Wal-Mart Stores had humble beginnings and grew out of one person's idea of how to do something a better way. Many of these companies would not have come to be if someone in power had been willing to listen and act on a new idea, and Wal-Mart is among them. That's right, the world's largest retailer, Wal-Mart, came about because the management of Ben Franklin stores rejected Sam Walton's idea. If you do not reject the basic idea, you may find this stock is worthy of consideration.

Sam had been a JCPenney management trainee when he leased a Ben Franklin franchise in 1945 and sowed the seed for the Wal-Mart saga many of us have seen unfold over the past 35 or so years. By 1962, he was operating 15 Ben Franklin franchises in Arkansas under the name Walton 5. When Ben Franklin's management rejected his idea of putting discount stores in small towns that same year, he and his brother James "Bud" opened the first Wal-Mart Discount City in Rogers, Ark. The rest is history.

During the 1970s, Wal-Mart developed its highly automated distribution centers, phased out its Ben Franklin Stores, computerized inventory control and bought and sold several operations. By 1980, there were 276 stores with about $1.2 billion in sales. The decade that followed saw the start of Sam's Wholesale Clubs and Hypermart USA (concept for the Wal-Mart Supercenters) and the acquisition of Cullum Cos., a supermarket chain.

Even more explosive growth came during the 1990s. Wal-Mart acquired McLane Co., a grocery and retail distributor, launched Bud's Discount City and expanded internationally. All the while, investors watched as the stock habitually went up and split and went up and split, again and again.

The last stock split occurred in 1993, and the stock began a three-year decline. It bottomed in early 1996 and cycled around $25 during the remainder of the year. Early in 1997, this stock appeared to have broken out of what technicians would call an "inverted head and shoulders" formation, climbed above its 200-day moving average and established a long-term up trend. Since last February, it has outperformed the S&P 500.

The most powerful source of risk may be Wal-Mart's small exposure to the economic and political problems in Indonesia. There are some franchises there, but they produce a very small proportion of the company's total revenue. The worst case scenario for Indonesia's future is not likely to occur. If it does, it is not likely to have an extremely negative impact on the company's earnings.

Twenty-eight broker analysts watch this stock. Fifteen of them classify it as a buy, while four think it is a strong buy and nine rate it hold. On a scale of 1 = strong buy to 5 = sell, their recommendations average 2.18.

From a value perspective, Wal-Mart stock may still be a good investment for the long term. At a price of $39 1/2, its price earnings ratio is around 26. This suggests that it is not overpriced because the P/E is close to the market average. My research, which takes into consideration estimated earnings for the next two years, indicates this stock should be priced closer to $55. This may not be the best retail stock to buy at this time, but there is some added value. All things considered, long-term-value investors may find Wal-Mart Stores Inc. stock a worthy addition to their portfolios.

Dividend Reinvestment Plan: Yes

Web Site: http://www.wal-mart.com

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (573) 651-9196 (walkrich@mvp.net)

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.