Warren Buffett was buying Walmart stock in the first quarter of 2014. Given Walmart’s trading range during the first quarter, this means that Buffet’s acquisition price must have been between $73 and $79 per share. Currently, Walmart is trading around the very bottom of that price range, at $73.54 as of the close of trading on August 4.
Historically, following professional investors has proven to be both difficult, and dangerous. For one, professional investors are given a 45 day grace-period between the time a quarter ends and the time they are required to file their quarterly 13F forms with the Securities and Exchange Commission. A 13F form is simply a document that discloses long positions in stocks held by large hedge funds and other institutional money managers. The reason for the 45 day grace period is to keep other investors from “copying” their investment strategies, and hence taking away their competitive advantage. Particularly with the largest investors, it is common for their investment picks to have risen during the quarter and subsequent 45 day grace period. Hence, for investors wishing to copy their strategy, they are often times forced to buy the stock at a higher valuation – maybe a valuation beyond that which would have appealed to the professional investor initially.
However, this does not mean that 13F filings cannot be used effectively if investors are careful. Walmart, for example, was purchased during the first quarter of 2014 according to Berkshire Hathaway’s portfolio disclosure. Investors therefore know that Warren Buffet’s purchase price ranged between $73 and $79 per share, because that is the price range of Walmart’s stock during that period. Now that Walmart’s stock is trading around $73 per share, an investor can know that they are purchasing Walmart at a valuation which Warren Buffet found attractive.
Walmart has many characteristics that Buffet has publicly stated he finds attractive. It is both dominant within its industry, and it is shareholder friendly. Walmart has been averaging share-repurchases of approximately 3 percent of the outstanding float, thereby increasing the earnings of the company on a per-share basis. It also pays out a dividend of approximately 2.5 percent. All else being equal, between share re-purchases and the dividend yield alone Walmart is offering investors an annualized return of at least 5 percent.
Further, Walmart is the quintessential wide-moat business. It has unmatched economies of scale because of the cost advantages that come with selling over $475 billion dollars’ worth of goods every year. Because of its scale, Walmart has the ability to provide companies with a game-changing sales channel by offering their products a place on its shelves. This in turn provides Walmart with negotiating leverage respecting price and payment terms. Walmart will always be able to find a company capable of supplying a similar product, but the supplier will not be able to find another Walmart. Warren Buffet has held Walmart in his portfolio for years, and investors now have an opportunity to follow in his footsteps by buying at $73 per share.
Opinion by Benjamin A. Buchanan