Question: I started buying Wal-Mart (WMT) stock at $11.00 share and currently have over 3,000 shares. I am 62 years old and concerned that for at least the past five years the stock has gone nowhere. What should I do? I am very conservative. — Bobby
There is a good and a not-so-good story here. As I write this, Wal-Mart stock is where it was in 1999 — but, believe it or not, this is a normal occurrence. Most of the market got ridiculously overvalued in the late '90s, Wal-Mart included. In fact, at its peak, it was trading at over 50 times its earnings. The normal number for a company like Wal-Mart is 15 to 20 times earnings. For the past few years, it has simply been working off the overvaluation. Walmart is undoubtedly the greatest growth story we have ever seen, but now there is a problem that Wal-Mart created itself. It is just too big to grow like it used to. Markets pay up because of growth rates — the stronger the better — the longer the better. The main problem is that Wal-Mart can no longer grow as it did before, because it already has over $300 billion in annual sales. This remains a great company, but because of its size, Wal-Mart will be an average stock going forward.
Question: What do you think the upside, if any, is on Goldman Sachs, (GS)? — A.M. (Scottsdale, AZ)
My favorite brokerage stock right now is Goldman Sachs, for one simple reason: its recent earnings were powerful. The worst thing I could say is that it may need to consolidate recent gains, but whatever they are cooking, I want to be eating it. I would also use the stock as a market proxy. I believe when the brokerage stocks top out, it will be a great indicator for the market.
Question: I am a 19-year-old college student and I will be coming into some money in the next six months, about $20,000. I would really like to invest it long term. Any suggestions? — Patrick
With that type of money, just coming out of college, I would have you research the best growth mutual funds that have stood the test of time, through both bull and bear markets. I hesitate to name one for you because I believe investing is all about education. I would start by getting the Investor's Business Daily newspaper. Every day, they highlight the best funds in the marketplace, not by popularity but by performance.
Question: I have, among other stocks, 14,700 shares of General Electric (GE) that I have bought over the years, at an average cost of $25.00. These stocks have done nothing for several years now, so is it time to sell and move on to something else? I'm completely frustrated! — Placido
Placido, ultimately you're the one who has to decide, but here's my take. GE's stock, like so many others, has not moved in years because of the tremendous overvaluation that occurred in the late '90s. Just like Wal-Mart, at its peak, GE was trading over 50 times earnings. Normally, a stock like GE should trade between 15 to 20 times earnings, which is where it currently sits right now. But there is another problem: GE's earnings have become very inconsistent lately. Last quarter, they came in at an anemic 2% growth rate. If that continues, there is no way the stock is going anywhere. I think the other problem GE is having is that in December 2005, they gave out a revenue number for the quarter, and then, a month later, missed by $1 billion! Wall Street is never thrilled by misses like that. At best, I think you will have an average stock going forward. GE is just too big to grow like they used to. I also believe they have too many "moving parts," and the market has not paid up for so-called "conglomerates" in a very long time.
I bought shares of NS Group, Inc. (NSS) last June. The stock has performed very nicely for me so far and the current data would seem to indicate continued good prospects. What are your comments about this company's future, and the potential of it being bought out? — Robert (St. Louis, MO)
Many companies are potential takeover candidates, but you should never base your investing decisions on whether one may occur or not. NSS has done well on the back of strong demand for oil, and the products involved in the delivery of oil. The group is still in good shape but watch oil prices carefully. If prices come down, NSS will most likely follow.