(This article was originally published Wednesday.) --Wal-Mart's stock nearing record high --Investors seeking 'safe' stocks with high cash flow and dividends --Bulls point to recent earnings growth, reasonable valuation By Matt Jarzemsky NEW YORK--Wal-Mart Stores Inc. (WMT), which once advertised "always low prices," clearly wasn't referring to its stock. Shares of the world's largest retailer have raced ahead of the broader market in the past few months, nearing their all-time closing high of $69.69, set in 1999. The ascent is the latest sign of stock investors' appetite for defensive plays, such as the big retailer with its steady cash flow and regular dividends. "This has been part of a 'risk-off' trade," said Kevin McCreadie, chief executive of PNC Capital Advisors, which manages $35 billion. Mr. McCreadie said uncertainty about U.S. economic policy and concerns about Europe's debt crisis have caused Wal-Mart and other low-price retailers to benefit from "a safety trade that's been in the market, basically since the end of the first quarter." Investors seeking safety have been drawn to such firms, he said. The prospects for further gains are debatable. Bulls point to the better-than-expected quarterly results Wal-Mart reported last month as well as a price-to-earnings ratio that remains relatively modest. "They've really had a bunch of things click," said Josh Goldstein, senior analyst for money manager Invesco Ltd.'s (IVZ) $5.1 billion Charter Fund, which owns Wal-Mart shares. "If you can get a little growth there, a growth outlook in a hot sector, that really captured people's imaginations." Same-store sales at Wal-Mart's namesake stores in the U.S. rose 2.6%, the most in three years, in the quarter ended April 30. Mr. Goldstein said that increase and signs of the company's progress in managing expenses were key reasons that "the last quarter was really the one that got people excited." Wal-Mart shares were edged up a penny to $68.59 Wednesday. The stock has jumped 12% over the past three months, the second-biggest increase among Dow Jones Industrial Average components, behind Verizon Communications' (VZ) 13% increase. The retailer's price-to-earnings ratio has risen to 14.8 from 11.7 a year ago and this month hit a high of more than two years, according to FactSet. That indicates the stock has gotten pricier, with investors paying more for the profit the company generates. But Wal-Mart's price-to-earnings ratio remains below its average over the last 15 years and little slightly above that of the S&P 500. Consumer-staples companies have proven resilient in recent months. Some investment strategists have recommended sticking with defensive stocks amid uncertainty about Europe's debt crisis and signs of the U.S. and Chinese economies slowing down. Such a strategy might benefit Wal-Mart, which has quintupled its annual dividend over the past decade, including a 9% increase this year in the payout, to $1.59 a share. The retailer has also been active in buying back its shares. As of the end of April, it had spent more than a third of the $15 billion its board authorized for share repurchases in July 2011. Wal-Mart could suffer if uncertainty around Europe or U.S. economic policy is resolved, fueling a shift by investors into higher growth corners of the market, PNC's Mr. McCreadie said. Meanwhile, the stock has already run up beyond the projections of Wall Street analysts. The median price target of analysts who follow Wal-Mart is $67.50, according to Thomson Reuters, leading many analysts to give the shares a hold rating. A Wal-Mart spokesman declined to comment on the company's stock price. The retailer's gains have made it a more significant contributor to the price-weighted Dow Jones Industrial Average. A 1% increase in Wal-Mart's stock at its current price moves the Dow 13 points higher. At the start of the year, a 1% gain by Wal-Mart would have added just five points to the average. Wal-Mart's march to record-high territory isn't unique among blue chips. The company would be the fourth component of the Dow Jones Industrial Average to hit an all-time high this year. Walt Disney Co. (DIS) did so last week, while Travelers Cos. (TRV) and International Business Machines Corp. (IBM) saw their highest prices ever earlier this year. -Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
