Wal-Mart, the World Dominator of the global retail industry, just reported fourth-quarter and full-year results for the year ended January 31, 2013.
Annual sales hit a record $466.1 billion, up 5% over last year... and just a 7% increase away from $500 billion – half a trillion. That's greater sales than any public company in the world.
Wal-Mart also raised its annual dividend 18%, to $1.88 per share. It logged record free cash flow last year, of about $12.7 billion.
I (Dan Ferris) first recommended Wal-Mart at $48.32 a share in October 2006. Since then, the share price is 47% higher (up 2.8% on today's good earnings news). It's paid out 15% of that original share price in dividends, for a 62% total return.
I know 62% in six years doesn't sound like much, but my initial Wal-Mart recommendation has produced a compound average annual return of about 7.9%, versus the S&P 500's approximately 1.6% average annual return since then. And you can't say I'm cherry-picking my portfolio by singling out Wal-Mart because nobody ever pounded the table repeatedly for more than half a decade the way I did on Wal-Mart.
Longtime readers can confirm that I never believed for one second Wal-Mart was anything but a fantastic business no matter what was happening in the world. I knew Wal-Mart would keep growing. I doubt anybody expected a company doing $348 billion in sales in 2006 would grow to nearly $500 billion in sales by 2013.
I remember in the 1990s, when Wal-Mart was doing $100 billion in sales, people like Bill Miller, the well-known fund manager at Legg Mason, said it was too big to grow. I never bought into that silliness.
Since my original recommendation, the business has grown in every way a shareholder should love: Sales are 34% higher. Earnings per share are 72% higher. Free cash flow is 182% higher. The dividend is 180% higher. It's just grow, grow, grow. Wal-Mart isn't a hyper-growth stock. It's much better. It's a can't-stop-growing stock.
Today… I'm pounding the table on a different World Dominator. This company has such gigantic market shares, its sales are anywhere from four to nine times those of all its competitors combined (depending on the market).
A lot of people are saying this company is in big trouble because its biggest source of revenue is "dying." The world loves to hate this company, the same way it loves to hate Wal-Mart. The hatred shows up in the share price, too. This other World Dominator is more than 20% below its 52-week high and trades for a cheap multiple of earnings, well below the average S&P 500 stock.
One reason my new "table pounder" World Dominator is so cheap is that it's spending money to maintain and grow its substantial competitive advantage. The company's spending spree of the last couple years has it generating less free cash flow these days.
The spending doesn't bother me at all. Back when I originally recommended Wal-Mart, it was spending more than 100% of its net income to build new stores as fast as possible. But I knew that wouldn't last forever. And when it stopped spending so much on stores, I knew it would pay that cash to shareholders.
I pointed to Wal-Mart's slowing growth and reminded readers in December 2007: "Let's not forget that the slower growth means lower capital spending and more free cash flow – which Wal-Mart loves to return to shareholders in the form of dividends and share repurchases."
Since my original recommendation, Wal-Mart's free cash flow and dividends are both up about 180%.
The World Dominator I'm pounding the table on today has seen free cash flow fall the last couple years as it builds out new facilities, similar to Wal-Mart's strategy several years ago. And its growth slowed recently, too.
But like Wal-Mart always has, this other World Dominator has never stopped crushing its competition. It's at least a year ahead of its closest competitor with new product launches. It's getting into a couple of new markets now, and it's only a matter of time before it dominates at least one of them, too.
I first recommended this World Dominator in 2009. I have no doubt in my mind this business is one of the best stocks in the world today. It's also one of the cheapest and safest.
My latest recommendation on this World Dominator comes out today in the March issue of The 12% Letter. Like most World Dominators, I expect this company to keep raising its dividend year after year, as it has done 18 of the last 20 years… It's one of the safest income stocks in the world today… It's got a fortress balance sheet, like most World Dominators… It gushes free cash flow, like all World Dominators... It's got consistently thick profit margins, like all World Dominators... And it's great at rewarding shareholders with dividends and share repurchases, like all World Dominators.
There's no way I can promise this World Dominator will produce the results Wal-Mart produced... but it sure does look like the next few years will bring good things to the business.
Not a lot of fantastic businesses trade at cheap prices today. The S&P 500 trades for more than 17 times earnings. It yields about 2%. I can't reveal the yield of my latest 12% Letter recommendation… but it's the highest-yielding World Dominator I've ever recommended. And it's raised its dividend more than 20% a year on average over two decades.
If you want to get access to The 12% Letter and find this virtually one-of-a-kind stock, just click here. Remember, our subscriptions are no-risk propositions. If you find you don't like The 12% Letter within the first four months, we'll give you a full refund, no questions asked. We want you to be happy with our research. It's the only way we'll do business.
Japan wants cheap U.S. natural gas.
The country imported a record 8.2 million metric tons of liquefied natural gas (LNG) in January, up 1% from December.
Since the 2011 Fukushima disaster, Japan has shut down or idled all but two of its atomic reactors. According to Bloomberg, the safety standards implemented by Japan's regulators have pushed down the average operating rate for nuclear plants to a mere 5.3% in January, down from 10% a year earlier. Meaning the reactors were operating 5.3% of the time (out of a potential 100%).
With nuclear generation cut to almost nothing, Japanese utilities turned to LNG. Total 2012 Japanese imports increased 11% over the previous year.
Japan is the world's largest LNG importer by far. The International Energy Agency (IEA) records its net imports for 2011 at a massive 116 billion cubic meters. That's 65% more than the next nearest importer, Italy, which imported 70 billion cubic meters in the same period.
At a meeting tomorrow in Washington, new Japanese Prime Minister Shinzo Abe is expected to ask Obama for access to the United States' newfound abundance of cheap gas…
Japan pays about $16 per million British thermal units (mmBtu) for its gas. In the U.S., natural gas goes for around $3.35 per mmBtu today. So Japan's increased reliance on LNG is having an enormous impact on its energy bill. It makes sense for Japan to look for additional and possibly cheaper sources.
At the moment, most of its LNG imports arrive from other Asian countries and the Middle East. The small Arabian country of Qatar is the world's No. 1 LNG exporter. Australia is ramping up with seven new export facilities under construction and expects to take over the No. 1 spot from Qatar within the next few years.
Although the U.S. is the world's second-biggest natural gas producer (behind Russia)… we export very little of that supply (which is why the domestic price is so much cheaper than the price in other regions of the world.) Bloomberg reports that Abe wants the U.S. to share its bounty.
Right now, the U.S. has only has approved one export terminal… and it's not yet shipping out natural gas. That's the Sabine Pass owned by Cheniere (NYSE: LNG). The company is building five export terminals and expects the first two to be operational in 2015/2016.
Porter recommended Cheniere to his Investment Advisory subscribers last July, anticipating the kind of demand from global markets we're now seeing from Japan… The price imbalance couldn't last… and the companies that could supply our cheap gas to the world would prosper. Investment Advisory subscribers are already up 40%... And as we said, Cheniere hasn't even begun shipping LNG from Sabine Pass yet.
New 52-week highs (as of 2/20/13): Dominion Resources (D) and Sysco (SYY).
Gold is on the minds of lots of readers today… Are you buying? Or selling? Send your thoughts to feedback@stansberryresearch.com.
"Thank you for these reassuring words [regarding gold stocks]. Not being the professional financial person as you, we need reassurance from time to time. Again thanks." – Paid-up subscriber Thomas Wolf
"There was blood on the streets today and while it was painful to watch I went long call options on PAAS and GDXJ right at the bottom of the second sell off (following release of the Fed Follies).
"This selloff is insane. Gold is going to spike short term. Too many catalysts for a broad market selloff in the upcoming weeks..." – Paid-up subscriber Dave V.
Ferris comment: I'm not selling one ounce of my gold, and I'm thrilled to buy some of my favorite precious-metal stocks at lower prices. But I'm not typical. Most people hate it when prices fall because they have no idea what they actually own.
But I disagree with the idea you imply – which I also recently heard on Mad Money – that gold will rise when the market falls. Remember 2008 when everything fell? Everything but Wal-Mart, that is.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
February 21, 2013
I think it's very risky to buy gold at this price… but it's riskier not to own it. Let me clarify... If you already own gold, you should hold. If you don't own any gold, you need some in your portfolio.
We have never before had a paper currency serve as the basis of trade all around the world… Throughout history, money was founded on gold or silver. (Paper money was convertible into these metals.)
On that topic, it's also true that it's impossible to assign an inherent value to gold... It doesn't produce a yield. It doesn't produce any earnings. It's simply a refuge from the poor policies of central banks…
Today, I believe the real rate of inflation in the U.S. economy is something between 4% and 6%. And I believe a real (and fair) interest rate would be another three or four percentage points above that. The American government is basically bankrupt and has shown no ability to deal with that crisis. So I think a fair rate of interest in the U.S. would be something between 8% and 10%.