This morning Wal-Mart (WMT) reported blowout earnings.  As of this writing, Wal-Mart stock is up $3.20, or 5.4%, even though the overall market is down.

Here is why I recently bought Wal-Mart and recommended it as a buy to my subscribers on the news of bribery scandal in Mexico.

Investment Merits

I focus on making money by identifying change early.  I had concluded that a change was happening at Wal-Mart but not fully recognized.  However I could not pull the trigger to buy Wal-Mart because the price at which it was trading posed more risk than my system allowed.

The news of scandal, flood of downgrades by analysts, and overblown fears depressed the price and offered me an opportunity to buy the stock.

The biggest challenge to Wal-Mart’s growth in the United States has come from dollar stores such asDollar General (DG), Dollar Tree (DLTR), and Family Dollar (FDO).  The merchandise in the dollar stores has improved and they are offering more food items.  In my analysis, the adverse effect of dollar stores on Wal-Mart has peaked.

This morning Wal-Mart reported EPS of $1.09 vs. consensus of $1.04; reported revenues of $112.3 billion vs. consensus of $110.54 billion.  Wal-Mart sees Q2 EPS $1.13 – $1.18 vs. consensus of $1.16.  Commentary in the earnings release is positive.

My analysis about the impact of dollar stores on Wal-Mart has proven spot on.  Interestingly, this morning’s earnings report from Dollar Tree is showing that cracks are developing in the torrid growth pattern.  Dollar Tree sees Q2 EPS of $0.87 – $0.93 vs. consensus of $0.95.

As Wall Street recognizes that the dollar store phenomena….Read more at Forbes