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By Christine Benz and Jeremy Glaser | 02-19-2016 06:00 AM

Friday Five: After Rollback, Wal-Mart Shares Look Cheap

At current prices, investors don't need to see radical improvement at the retailing giant in order to get a good long-term return. Plus, decoding the Fed minutes and checking into Priceline.

Christine Benz: Hi, I'm Christine Benz for Welcome to The Friday Five. Joining me to discuss some notable market news from the past week is Morningstar markets editor Jeremy Glaser.

Jeremy, thank you for being here.

Jeremy Glaser: You're welcome, Christine.

Benz: One of the big headlines from the past week in the market was Walmart releasing its earnings. It wasn't a pretty picture, and the market didn't take the news especially well.

Glaser: The market decided to roll back Walmart's stock price a little bit this week. A lot of things were not particularly comforting in this earnings release. There was continued weakness at Sam's Club and their international operations. Their e-commerce grew but maybe not at the clip that people had hoped given how much they have been investing in it. They also did cut their sales guidance based on the strong currency and based on some of the stores that they are closing. Those closings had been previously announced. Due to that, we did see the stock price come down.

But Ken Perkins, our Walmart analyst, thinks a lot of these short-term fears are a little bit overblown and that the long-term thesis for Walmart is still very much intact. He thinks it represents a pretty attractive opportunity for investors right now. He thinks the risk-reward is very much in investors' favor.

He thinks they will be able to leverage some sales growth in the U.S., which they still are seeing, into better profitability. When part of this investment phase, and the higher wages that we've talked about, and also investment in their e-commerce--once those start to roll off a little bit, they'll see better profitability. But right now, there is not much growth priced into the shares. You don't need to expect things to become radically better in order to get a good long-term return. You really are just looking for stabilization, and anything above that is really gravy for you. He thinks that's a pretty attractive proposition in today's market and still sees the shares as undervalued.

Benz: I know historically we had it as a wide-moat retailer, and a wide moat is hard to earn in the retailing space. Does it still hang on to that wide-moat rating?

Glaser: It still does, and a lot of that is due to its competitive advantages in terms of the scale it has, the buying power, and the brand that it still does command. The brand intangibles really do help it keep its competitive advantage.

Benz: The Fed released the minutes from its January meeting this week. Let's discuss what you saw when you read through those minutes.

Glaser: It does seem like the likelihood of a March rate hike has decreased--if maybe not quite to zero, virtually to zero. In the minutes, they did say that they are seeing even more uncertainty. This was in January, so obviously we've had some time since then. They were concerned that inflation wasn't going to come up to their 2% target as quickly as they had expected. That's what they are focused on now with the labor market looking pretty good, and they don't see signs that they need to raise rates right now. Given the uncertainty, maybe they feel like it's prudent not to.

I think this was, in some ways, part of the plan all along. I think they had obviously wished to have more rate increases in 2016, but one of the reasons they started so early, before there were severe inflationary pressures, was so they could take a wait-and-see approach, and they wouldn't be forced into very quick increases if inflation were to rear its head, which is something they thought could be very detrimental to the economy. So this is really more of the same, and it amounts to an outlook of very slow rate increases over time.

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