Testing Value Investors

Compared with Inflatable Fun City the broader stock market, Wal-Mart’s stock performance has been tremendous. While the Standard & Poor’s 500-stock index has tumbled almost 9% so far this year, Wal-Mart shares rose 21%.

Patrick Becker Jr., a value manager at Becker Capital Management, bought Wal-Mart stock in 2006, when it was “fairly cheap,” but he now says, “We don’t think it’s expensive, and we don’t think it’s cheap.” Craig Hardy, manager of the Huntington Income Equity Fund (HIEFX) says the stock is “probably fairly valued.”

Both those managers said they still hold Wal-Mart stock, but Chris Trompeter of Tradition Capital Management, says he sold most Wal-Mart holdings in May.

“We can like the company but not necessarily like the stock price,” Trompeter says. “That’s where we are right now. We needed the money for other stocks we thought were more compelling.”

Investors use a variety of methods to determine the “correct” value of a stock, with the price-earnings ratio a common shorthand. With a p-e of 18 based on earnings from the past 12 months, Wal-Mart is at its highest valuation in three years, a price that is scraping against many value-oriented investors’ upper limit.