Group 6: Warren Doubles Down

Mr.Buffet's Move-
In the third quarter, which ended September 30th, Warren Buffett nearly doubled his holdings on Wal-Mart Stores Inc. At the end of June, he held 19.9 million shares, but that number rose to 37.8 million shares by the end of the third quarter. Buffett has raised his annual earnings growth projections from 9% to 15%; which would make his purchase price cheap. Although this will be difficult, his reasons include smaller stores with lower prices, and from the anticipated growth in international markets such as China and Brazil.

In addition, Wal-Mart expects to get higher returns on Supercenters in 2010 and going forward, and in turn opened 15 new Sam’s club locations in the last fiscal year. Shares are trading approximately 23% below their all-time high in 2000, however not cheap by many standards. This brings into question Buffet’s reasons, as he is typically seen as a value investor. Given his extremely high earnings projections, it appears he must have a different idea than most of the street. WMT’s CEO, Michael Duke, said “The economy remains challenging for customers and Wal-Mart sales, but we are encouraged by increased traffic and our market share gains".

What to expect this holiday season-
This space is filled with other wholesalers like BJ's( which has a large presence of the northeast) which saw a weaker 3Q with their consumers' focus on basics. The trend of late has been saving money on staple items. The recession has worked in BJ's favor with membership growing and shoppers continuing to flock to its stores. BJ's management said they are starting to see shoppers slowly begin to buy more general merchandise, but said sales of items like electronics, tires and video games remain weak. However, the company said the coming quarter — its holiday period — will have shoppers buying more food than other items, and falling food prices will continue to be a challenge in the fourth quarter. Standard & Poor's Equity Research downgraded its opinion on shares of BJ's to "Hold" from "Buy," saying it sees pricing competition for food retailers to remain intense as food deflation weighs on them. According to these trends Wal-mart it would seem is in a very good position to benefit consumers trading down, due to the fact they offer much of the cost savingings that BJ's and Costco do, yet require no membership.

Anaylsts at Goldman have raised its price target for Costco to $61 from $57, citing “improving trends in higher end discretionary items.” Goldman also raised its full-year 2010 sales and profit estimates through 2012 for the membership warehouse operator. The analyst currently rates COST as “Neutral.”

This Holiday season will be very important for these companies and their 4Q, hoping to see the gap narrow between staple good spending over discretionary. With US Unemployment crossing double digits, this next month will certianly be interesting.