Albert Einstein stated that the greatest invention of man was compounding interest. Mr. Einstein obviously never heard of a "Supercenter" discount store or Viagra. I love bargains. I love buying good companies at a discount. The two companies I'm highlighting today are both. They also helped revolutionize America: one through a new retailing model of everyday low prices, and the other through lifestyle-changing drugs. Both companies have faced bad publicity, and their stock prices reflect it. However, both companies are typical of my investment strategy: ample cash flow and manageable debt, and great growth prospects.
The good news is Americans hate treadmills. Americans like being able to take a pill to be healthier. Viagra ushered in the new lifestyle drug era. With an aging population, this is potentially a terrific era for the pharmaceutical companies. Pfizer still has a decent pipeline and plenty of cash to fund an already massive research and development effort. Pfizer believes using this cash to increase advertising will help sales as well. Pfizer has 10 drugs with more tha $1 billion in sales. Pfizer has potential blockbusters in several newer drugs, including another cholesterol drug (torcetrapib) and an insulin inhalant (exubra). With a dividend yield over 3%, the worst news behind it and potential blockbuster drugs emerging, this is a chance to get a great company on sale. I have owned Pfizer for some time, and earlier this year added to my position. Do I wish I'd bought in the low $20s vs. the high $20s? Absolutely. But I sure wouldn't be a seller here.
Analysts, in my opinion, have mistakenly said that oil prices will hurt Wal-Mart sales too much. At $45 a share, that has already been factored in. I believe we have temporarily seen a peak in oil prices. You're already seeing some profits being taken in energy stocks, and I think you will see a sector shift from energy to value. Wal-Mart is now a value play. And if gasoline prices remain high, consumers will not want to drive to many different stores to shop. In a Wal-Mart Supercenter, consumers can buy everything they need with one stop. Wal-Mart does have some potential risks. A class-action lawsuit is pending, and Wal-Mart continues to fight against labor organizing. Wal-Mart also is still being protested in certain communities as the dreaded mom-and-pop store killer. Wal-Mart has a history of winning these fights. However, if labor were to organize, it would hurt the company. Wal-Mart's biggest advantage is in inventory management. Its recent investment in RFID (radio frequency identification, which will replace the bar code) will pay great rewards. Wal-Mart shares went above $70 in late 1999 after the company announced plans to launch its Web site; the only problem was the Web site wasn't ready. Wal-Mart since has slowly built a very good Web presence. Wal-Mart's nationwide presence allows consumers to be able to return or to have repaired the merchandise that they buy over the Internet. I believe there will come a day when one will be able to buy merchandise over the Wal-Mart Web site, and, because of Wal-Mart's huge distribution network, have it delivered the same day. With EPS estimates of $3, Wal-Mart is trading incredibly cheaply. I have recently added shares of Wal-Mart to my portfolio, and I shop there often. Look for me in the "big and tall" section.