Bite Into Wal-Mart if the Stock Falls in Wake of China Meat Recall

NEW YORK (TheStreet) -- Wal-Mart (WMT) is having to recall "Five Spice" donkey meat from stores in China after fox meat was found in the packages. The provincial government in China has ordered a halt to the sales of donkey meat by the supplier, Dezhou Fujude Food Group, according to an article in Bloomberg Businessweek.

If Wal-Mart shares fall on the news, investors should look upon this as an opportunity to buy the stock at a discount for the long term.

After all, investors were rewarded for picking up shares when Wal-Mart's Mexican bribery scandal surfaced in April 2012. At that time, Wal-Mart shares were trading for less than $60 a share. Now they're changing hands for about $78.90.

Warren Buffett bought more than 7.6 million shares of Wal-Mart at $61 in the first quarter of 2012. At present, Berkshire Hathaway (BRK.A) owns close to 50 million shares of Wal-Mart, its seventh largest holding.

When scandals hit that do not affect the core operations of a company, they can present an excellent opportunity to accumulate shares.

A recent series of articles on TheStreet, "Least Favored in 2013," discussed companies that had been affected by "shockers" in 2013. These included Caterpillar (CAT), the biggest heavy equipment maker in the world and a member of the Dow Jones Industrial Average. As I wrote in an article for that series, Caterpillar lost a great deal of money because of its purchase of a Chinese company that had fraudulent accounting.

But Caterpillar recovered from that scandal and is up more than 11% in the last six months.

The same should be expected of Wal-Mart if the stock price falls due to the donkey meat scandal.


Wal-Mart is focusing a great deal of resources on China, as I wrote in another article at TheStreet. It is reconfiguring its strategy to emphasize growth in secondary cities, with the building of 110 new super centers and Sam's Club stores over the next three years in China. So it can certainly be expected to react strongly to any crises and maintain its good name.

For the future, Wal-Mart should reward those who buy for the long term.

The world's largest retailer, Wal-Mart is probably not going to report any jaw-dropping numbers. But it does offer steady growth, which is very rewarding for long-term investors. Obviously, that is why Warren Buffett is a major shareholder.

The analyst community projects earnings-per-share growth of 8.6% over the next five years at Walt-Mart, according to FINVIZ.com. That is in line with EPS growth for the past half decade of 9.7%. EPS growth this year is 10.6%. The lower expected EPS growth has not hurt the stock, as the share price has risen nearly 17% for the last year.

What adds to the total return for long investors in Wal-Mart is the dividend component.

Wal-Mart is a so-called Dividend Aristocrat, which means it has increased its dividend annually for at least the past 25 years. At present, the average dividend yield for a member of the S&P 500 is around 1.9%. For Wal-Mart, it is nearly 2.4%. It has increased its dividend annually since 1974 and has a divided growth rate of 15.5%.

Like Caterpillar, Wal-Mart is a long-term holding.

When the price of a blue-chip stock dips due to "shockers," investors should take advantage of the discount to accumulate shares. If Wal-Mart falls due to the donkey meat matter in China, that is certainly such an opportunity.

At the time of publication, the author had no positions in stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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