Friday, July 13, 2012

Position Decision

I'm a little torn on what to do with my small position in Walmart (WMT). I originally purchased the shares back in late April after the Mexico bribery scandal became news. At the time Walmart had dropped a lot over a few short days and I was able to pick some up for a cost basis of $58.59. Since then it has gone on a remarkable run and is currently up to $73.03 which is 24.55% higher than my purchase. I figured I'd start a little pro/con list to think through whether I should sell.

Pros:
(1) Got a YOC of 2.71% which is on the high end of their typical range.
(2) Still undervalued according to my DCF, Avg High Div & Avg Low PE price calculations.
(3) Payout ratio is still a very manageable ~35%.
(4) Still on track for a 10 yr YOC > 10%. 12.60% using a weighting of the 1,3,5 & 10 year dividend growth rates.

Cons:
(1) Didn't love the entry price more than for a quick turn-around in price. Made 24.55% in ~ 2.5 months, good for a 181.33% CAGR.
(2) Entry yield is below what I would like to maintain my portfolio at.
(3) Overvalued by about 16% versus the average of all my valuations ($62.98)
(4) Walmart historically has a ~25% trading range in a given year between low and high points.
(5) Position is very small, consisting of 9.054 shares.

I think for now I'm going to hold off on selling but if it reaches the $76 mark it might just be time to sell and take the gains.

Picking entry points is easy enough but picking your exit point is much harder and more difficult to follow through on.

2 comments:

  1. Good job buying shares during the scandal, I remember that well. Too bad I chickened out on a purchase. I don't know what the fees are at your broker, but consider how commissions will cut into your profits. What would you buy if you sell?

    I also find it harder to know when to sell especially if it's a quality company with a bright future such as Walmart.

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    Replies
    1. I definitely wish I could have bought more when news of the scandal broke. Commissions would definitely eat into the profits but not a horrible amount. The main reason that I'm thinking of selling is because at Friday's closing price of $73.18 I have it being overvalued by ~ 16%. I think it's not grossly overvalued so that's why I'm holding off on selling for now. I'm thinking between the $76 and $79 mark is where I'll be getting off. At that point shares would be overvalued by more than 20% and the current yield would be down to 2%. Of course the forward PE would still only be 17 at $79.

      As far as what I would buy, I'm not really sure. I've got a lot of capital waiting to be deployed but just haven't found too much lately. It seems I missed out on the most recent buying opportunity when I was on my honeymoon. Have you found much to buy recently? I need to start deploying some of my capital to get it going to work so I don't have to.

      Thanks for stopping by!

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