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Here’s Why Warren Buffett Dumping His Walmart Holdings Was A Mistake

Thursday, February 23, 2017 4:55
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(Before It's News)

From "http://www.wyattresearch.com/article/warren-buffett-first-mistake-of-2017/"
target="_blank">Stephen Mauzy
: Caldor, Service Merchandise,
Gaylords, Gimbels, Montgomery Ward, W.T. Grant, Woolworth. What do
the aforementioned names have in common? "more-157236">

They were all once market-dominating retailers that went bust.
Former retailing powers Sears and K-Mart, both owned by
Sears Holdings ( "http://etfdailynews.com/stock/SHLD/" target=
"_blank">NASDAQ:SHLD
)
, could soon follow. J.C.
Penney ( target="_blank">NYSE:JCP)
and Macy’s ( "nofollow" target="_blank" href="/r2/?url=http://etfdailynews.com/stock/M/" target=
"_blank">NYSE:M
)
struggle to update their business
model by downsizing the number of stores they operate. Downsizing
has its limits.

Retailing is a tough racket. Decades of getting it right hardly
ensures survival. Newcomers continually nip at your heels, and
every few years or so, a legitimate game-changer emerges to upset
the industry paradigm and force the establishment to adapt or
perish. Size fails to impart immunity.

Warren Buffett and Wal-Mart

No retailer is bigger and more established than Wal-Mart
Stores ( target="_blank">NYSE:WMT).
These facts haven’t
shielded Wal-Mart from a growing horde of detractors. The
detractors were given a reload on their detracting when news hit
that Warren Buffett raised a white flag on his Wal-Mart
investment.

In the fourth quarter, Berkshire Hathaway
(NYSE:BRK.b)
unloaded 89% of its Wal-Mart holdings. Upon
hearing the news, Business Insider, a business website prone to
hyperbolic rants, ranted about Wal-Mart’s fate in an article titled
“Warren Buffett Just Dropped Walmart and Signaled the Death of
Retail as We Know It.”

But did he really?

Our intrepid Business Insider reporter highlighted the obvious
retail game-changer Amazon.com ( "http://etfdailynews.com/stock/AMZN/" target=
"_blank">NASDAQ:AMZN
)
. In the past two years,
Amazon.com’s shares are up 120%, while Wal-Mart’s are flat. Our
Business Insider reporter also referred to Buffett’s 2005 ominous
prediction of the downfall of Sears and K-Mart. Given Buffett’s
directive to unload Berkshire’s Wal-Mart investment, we could
extrapolate that Warren Buffett foresees a similar future of
dissipation for Wal-Mart.

We could, but I won’t.

Yes, we all know what a great investor, apotheosis of investing
acumen, and fount of investing aphorisms that is Buffett. That
said, the Warren Buffett of today frequently fails to adhere to his
own famous aphorism: “Our favorite holding period is forever.” Upon
even a cursory inspection, you’ll find the aphorism is more myth
than reality, particularly when you vet Buffett’s recent investing
history.

In just the last quarter, shares of Deere ( "nofollow" target="_blank" href="/r2/?url=http://etfdailynews.com/stock/DE/" target=
"_blank">NYSE:DE
)
, Verizon ( target="_blank" href="/r2/?url=http://etfdailynews.com/stock/VZ/" target=
"_blank">NYSE:VZ
)
, Kinder Morgan ( "nofollow" target="_blank" href="/r2/?url=http://etfdailynews.com/stock/KMI/" target=
"_blank">NYSE:KMI
)
, Liberty Media Group
(NASDAQ:FWONK)
, Lee Enterprises ( target="_blank" href="/r2/?url=http://etfdailynews.com/stock/LEE/" target=
"_blank">NYSE:LEE
)
, NOW Inc. ( "nofollow" target="_blank" href="/r2/?url=http://etfdailynews.com/stock/DNOW/" target=
"_blank">NYSE:DNOW
)
were all sold in addition to
Wal-Mart. And let’s not forget Buffett sold Exxon Mobil
( target="_blank">NYSE:XOM)
shares after owning them for
little more than a year.

Sometimes your experience and intuition serve as your best
guide.

I shop at Wal-Mart — regularly. In fact, I spend more money at
Wal-Mart than any other retailer. I shop mostly at their
brick-and-mortar stores, but I also shop at Walmart.com and
Wal-Mart’s recent e-commerce acquisition Jet.com. I associate
Wal-Mart with value, and Wal-Mart delivers with quality merchandise
at a price that produces value for me. (BTW, I never shop the
dollar stores. You’ll find low prices, but you’ll also find
inferior wares. The dollar stores deliver price, but not value, at
least in my universe.)

Watch Wal-Mart’s Growth

What’s more, unlike other former retailing greats, Wal-Mart
continues to grow. Total revenue grew 3% in the latest reported
quarter. In Amazon.com’s domain, cyberspace, Wal-Mart delivered an
impressive 29% year-over-year increase in e-commerce sales during
the important holiday shopping season. Wal-Mart’s e-commerce growth
was better than Amazon.com, which posted a 25.2% increase in North
American sales. (Yes, Wal-Mart is starting from a smaller
e-commerce base than Amazon.com, but the trend shows Wal-Mart is
taking meaningful strides to catch up.)

In total for fiscal-year 2017, Wal-Mart’s EPS posted at $4.32;
revenue posted at $485.9 billion. (Had the U.S. dollar not
appreciated so strongly over the past year, revenue would have
posted at $496.9 billion in constant dollars.) Wal-Mart management
expects EPS to range between $4.20 and $4.40 for fiscal-year 2018.
As for the dividend, it was increased for a 44th
consecutive year. This is a retailer with a future.

Warren Buffett began accumulating Wal-Mart shares in 2005. Given
the scarcity of opportunities for an investor who must invest in
billion-dollar increments, maybe he should have heeded his
“forever” aphorism regarding Wal-Mart a bit longer. Recent
financial results point to Wal-Mart successfully adapting to
e-commerce retailing while continuing to dominate brick-and-mortar
retailing.

As a veteran Wal-Mart shopper, I’m not surprised.

Wal-Mart Stores Inc ( "http://etfdailynews.com/stock/WMT/" target=
"_blank">NYSE:WMT
)
was unchanged in premarket trading
Thursday. Year-to-date, WMT has gained 3.75%, versus a 5.70% rise
in the benchmark S&P 500 index during the same period.


This article is brought to you courtesy of href=
"http://www.wyattresearch.com/article/warren-buffett-first-mistake-of-2017/"
target="_blank">Uncommon Wisdom Daily
.

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Source: http://etfdailynews.com/2017/02/23/heres-why-warren-buffett-dumping-his-walmart-holdings-was-a-mistake/

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