The market has cheered estimate-beating results, but we’re hardly convinced that the US economy is in the clear.

 

Wal-Mart (WMT), a Growth Portfolio resident and consumer bellwether has been no exception, as evidenced by the company’s recent earnings report. The retail giant saw U.S. same-store sales fall 0.4 percent versus the same period last year, short of the management’s expectations of flat to a 2 percent increase in sales. Earnings were up to $3.24 billion (84 cents a share) from $3.14 billion (80 cents a share) a year earlier as. Like so many others recently, the company beat profit expectations of EPS of 81 cents as CEO Mike Duke cut inventory by 4.1 percent and accelerated other expense-cutting mechanisms.

 

Looking towards the fourth quarter, management sees comparable sales flat (plus or minus 1 percent), but thinks even with the recession officially behind us, shoppers will continue to flock to Wal-Mart for value. We agree. And despite the near-term weakness in sales, we think the long-term story favors Wal-Mart. Winning most price wars with competitors and offering everything from daily necessities to high-end electronics, the retail behemoth can prosper in varying economic climates. As gas prices continue to rise, more shoppers will likely be looking for the one-stop-shop experience that Wal-Mart provides. Shares are currently trading at less than 14 times next year’s expected earnings and we see them as attractive.

 

 

 

 

We’re not the only ones who like Wal-Mart either, as two of the world’s most famous investors recently disclosed bigger stakes in the company.  As noted in his third quarter filing, George Soros added to his holding which now sits at roughly $54 million. Warren Buffet took an even larger stake, upping his ownership in the company to almost 37.8 million shares, or $2 billion. 

 

The two also made bets on ExxonMobil – seemingly agreeing with our thoughts about the uptrend of energy and commodity prices. We’ve never been huge fans of the company as we’re not impressed with Exxon’s production growth prospects, however with a low cost structure they will certainly continue to benefit from an uptrend in energy prices. Given its size and balance sheet strength, it’s also one of the safest energy plays around. And while we take note of these two investing gurus purchase into the company we continue to favor other, more growth-oriented producers, including Chevron (CVX) and Petrobras (PBR), as well as ConocoPhillips (COP), which is a strong play on natural gas.