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Example research essay topic: S P 500 Return On Assets - 1,944 words

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... wrong products (tennis balls that wouldn't bounce in high-altitude Mexico City, for example, and 110 -volt appliances in Argentina, where 220 -volt is the norm) and even bollixed up entire efforts (it pulled out of a loss-plagued Indonesian venture last year). In a joking reference to those cultural gaffes, John Menzer, Wal-Mart's head of international sales, says: "My goal is not to wear my underwear around my neck anywhere I go. " (Barlett, 1996). To that end, Wal-Mart has recently altered its strategy; instead of scattering stores around the globe, it's concentrating on becoming a major player in Europe.

In December 1997, Wal-Mart snapped up the 21 -store Wertkauf chain in Germany; a year later, it grabbed 74 more Interspar stores there. This year, in a blockbuster deal that shook up the once sleepy European market, Wal-Mart shelled out $ 10. 8 billion to buy Britain's Asda, a 229 -store Wal-Mart wannabe. "We " ve been a little too spread out, " admits Menzer, who served as Wal-Mart's chief financial officer before he took over the international division following the Asda deal. "We " re going to try to fill in regions. " (Barlett, 1996). The response in Europe to Wal-Mart's incursion was immediate and dramatic. Competitors scrambled to match Wal-Mart's low prices, long hours and friendly service. Then, before summer was out, France's Carrefour chain of hypermarkets had combined forces with its smaller competitor, Provides, in a $ 16. 5 billion deal -- and rumors were flying about who would be next. (Wallis, 1993: 56 - 8). Because of stubborn local regulations, it's often easier for Wal-Mart to buy existing stores in Europe than to build new ones.

But it still plans to put up lots of bricks and mortar in Europe and elsewhere around the globe. Menzer says he will open 90 to 100 stores a year overseas for the next three to five years. His target: doubling sales this year and again next year. Last year, international stores provided just 9 % of Wal-Mart's total sales. Analysts say that figure should reach 20 % by 2001. Looking further, Menzer has his sights set on hitting the $ 100 billion mark by 2010.

Wal-Mart would certainly seem to be far behind Amazon. com, eToys, eBay and the other e-tailers racing to become "the Wal-Mart of the Web. " But ultimately, Wal-Mart may be more likely to claim that title than the upstarts, contends Brian James, a retail analyst at Loomis Sayles & Co. , an institutional shareholder of Wal-Mart: "If the Internet becomes a way to make money, Wal-Mart will be there, and Wal-Mart will be bigger than anybody else. " (Neuborne, 1994). Today, online sales are "peanuts" for Wal-Mart, says James. But the potential market could be huge, particularly as more of the middle-American shoppers who frequent Wal-Mart's stores go online. Consulting firm Forrester Research figures that sales on the Net will soar to $ 184 billion by 2004, a more than ninefold increase over this year's expected $ 20 billion, as the number of households shopping online nearly triples to 49 million. Seema Williams, the e-commerce analyst who wrote the Forrester report, figures Wal-Mart will "sweep the market in categories it is strong in. " (Wallis, 1993: 57).

Indeed, Wal-Mart seems to have all the key ingredients for online success: one of the most recognizable brand names in the country, pricing power and unparalleled distribution capacity (see "The Smart Way to Invest in Net Stocks" on page 118). So far, however, Wal-Mart is moving slowly. CEO Glass explains: "You have to offer convenience at a price that is competitive, and I don't think anyone has figured out how to do that and make a decent return on the investment. " (Wallis, 1993: 58). Of course, Glass has Wal-Mart working hard to solve the riddle. For two years, without fanfare or heavy advertising, it has been testing wal-mart. com, gathering data about who's buying and what products they want.

The online store offers roughly 42, 000 items (vs. 100, 000 in a typical supercenter). As in its stores, Wal-Mart slashes prices to draw customers; some online-only specials are designed to undercut the prices of well-known e-tailers -- if only by a few cents. Among its recent promotions: best-selling author Frank McCourt's memoir 'Tis for $ 13, $ 2. 60 less than Amazon. com, and Millennium Barbie, dressed in a blue gown, for $ 32. 87, 12 [cents] lower than eToys. (Neuborne, 1994).

Wal-Mart was expected to relaunch the site in time for the holidays but has now postponed the overhaul until the new year to avoid potential problems during the peak selling season. With the relaunch, Wal-Mart will offer an astounding 600, 000 items -- far more than any existing Wal-Mart carries. Website users will also be able to buy airline tickets, make rental-car reservations, fill prescriptions and send digital photos. In what's called a "clicks and mortar" strategy, Wal-Mart will use its stores to bolster its online operations and vice versa. Customers can already shop in cyberspace and then pick up their goods, prepacked, at the closest Wal-Mart. And Wal-Mart is testing a program that introduces its traditional shoppers to the Internet through in-store kiosks, where, for example, they can order computers not stocked in the store. "You " ve seen Wal-Mart win every skirmish in its land-based wars, " says Burt Flickinger III, a consultant at Reach Marketing, who has studied Wal-Mart for 30 years. "There's going to be hell to pay for Internet entrepreneurs when they face the logistical brilliance of Wal-Mart. " (Barlett, 1996).

Anyone buying the stock today is betting that Wal-Mart can sustain its remarkable growth record. Wal-Mart is known for its operational skills. But continued expansion for a company already so huge is fraught with uncertainty, if only because no store has ever been this big before. For example, although Wal-Mart's execs say they aren't worried about over saturation in the U.

S. , finding places to put new stores has been getting tougher as communities from Greenfield, Mass. to Eureka, Calif. fight to keep Wal-Mart out. And while it dwarfs its rivals, it still has plenty of competition.

K Mart, now on the mend, has begun opening its own superstores. Overseas, companies like Carrefour don't roll over easily. The Internet remains a big unknown. And while Wal-Mart is less vulnerable to economic swings than most retailers, it would still suffer in a recession. (Discount Store News, 1994: 73 - 5).

Perhaps the biggest risk right now, however, is the lofty valuation of Wal-Mart shares. The stock consistently commands a premium over other retailers and the S&P 500. At its recent $ 55, it trades at 48 times latest 12 -month earnings -- vs. 28 for the S&P 500 -- and 39 times next year's consensus earnings estimate of $ 1. 40 a share. That's near the top of its historical P/E range and certainly seems like a lot to pay for a company with 3. 3 % profit margins and a 15 % earnings growth rate. Wal-Mart's high P/E increases the danger for investors should the company stumble -- or even if it simply fails to expand as fast as Wall Street expects it to. Those are issues you should consider before investing. (Schmeltzer, 1997: 4).

In essence, the case for buying Wal-Mart stock sounds a lot like the argument for buying New Economy stocks like Microsoft, Lucent or even America Online. Wal-Mart is by far the dominant company in its business, it has one of the most consistent track records of earnings growth, and its profitability on most key measures -- including operating margins, return on assets and sales per square foot -- keeps on getting better. This may not be the glitziest company in America, but it is one of the most admired and best-run ones. "Does Wal-Mart fit into the camp of an inexpensive stock by traditional valuation measures? Absolutely not, " says Tim Ghriskey, a portfolio manager at Dreyfus, which owns Wal-Mart stock and has no plans to sell. "You cannot justify it. But it is a good example of a company that should carry a high multiple. It is a dominating company, and it is worth a premium to the market and to the group. " (Barlett, 1996).

If history is any guide, it doesn't pay to bet against this Goliath. Seven years ago, when Sam Walton died, Wall Street questioned whether the company could continue to prosper without him. Today, there is no doubt that it has. And the people with the most riding on Wal-Mart are confident. In rare public comments from his windowless office, Wal-Mart chairman Rob Walton says that he, his mother and three siblings, whose 38 % share of the company is worth $ 89 billion, haven't pared that stake since Sam's death and have no plans to start. "I feel really good about where Wal-Mart is, " he says. A lot of smaller shareholders would have to agree. (Barlett, 1996).

Words: 3, 162. Appendix Stock market superstar Wal-Mart has been one of the great American investments. Here's what you would have today if you had invested $ 10, 000 in Wal-Mart and nine other stock market stalwarts in 1977. WAL-MART $ 6, 864, 352 INTEL $ 3, 023, 098 WALGREEN $ 2, 917, 588 PFIZER $ 1, 132, 420 GILLETTE $ 867, 706 GENERAL ELECTRIC $ 776, 061 MERCK $ 732, 815 COCA-COLA $ 603, 193 EXXON $ 429, 610 MCDONALD'S $ 427, 878 Note: Returns are through September 1999; assume reinvestment of dividends.

Source: Face Sarofim & Co. [BOX] Crushing the competition Wal-Mart long ago surpassed Sears as the nation's largest retailer. Here's how it stacks up against its traditional rivals on key financial measures. MARKET CAPITALIZATION (in billions) Wal-Mart $ 228. 3 Sears $ 11. 4 K Mart $ 5. 1 REVENUES (in billions) [Wal-Mart] $ 147. 5 [Sears] $ 40. 9 [K Mart] $ 34. 9 NET PROFITS (in billions) [Wal-Mart] $ 4. 9 [Sears] $ 1. 1 [K Mart] $. 6 RETURN ON ASSETS [Wal-Mart] 7. 4 % [Sears] 3. 1 % [K Mart] 4. 0 % RETURN ON EQUITY [Wal-Mart] 23. 2 % [Sears] 17. 3 % [K Mart] 10. 2 % Notes: Market capitalization is based on the closing price of Oct. 13. All other numbers are for latest 12 months, except sales per square foot, which is for 1998. Sources: Baseline, company reports. 1998 TOTAL SALES: $ 138 billion Discount stores 45 % Supercenters 25 % Sam's Clubs 17 % International 9 % McLane / other 5 % 2001 SALES: $ 212 billion [Discount stores] 32 % [Supercenters] 30 % [Sam's Clubs] 13 % [International] 20 % [McLane / other ] 5 % Sources: Wal-Mart financial statements, Morgan Stanley Dean Witter estimates. Based on all this information we infer that Wal-Mart is the No. 1 seller of toys, guns and men's underwear.

It is also becoming the biggest grocer. Bibliography: Barlett, D. and James B. "America: Who Stole the Dream?" The Philadelphia Inquirer, September 1996. Jane M. "New Plan to Invest in Urban Shopping. " The Philadelphia Inquirer, September 1995, p. 12. Neuborne, E. "Wal-Mart Modifies its Slogan. " USA Today, May 1994. Schmeltzer, J. "Town takes on Wal-Mart. " Chicago Tribune, June 1997, p. 2 - 4.

Stein, R. "National Issue. " Investors Business Daily, September 1995, p. 3. Throw, L. The Future of Capitalism. New York: William Morrow and Company, 1996.

Wallis, E. "When Wal-Mart Comes to Town. " Inc. , July, 1993, p. 56 - 8. Wal-Mart's Tail Wind Sends Competitors Shuffling" Discount Store News, December, 1994, p. 73 - 5.


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Research essay sample on S P 500 Return On Assets

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