Sep 24, 2020
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Mexican Bribery Gave Me A Chance To Make Money In Wal-Mart

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The Wal-Mart inside the Mountain Farms Mall (Photo credit: Wikipedia) This morning Wal-Mart (WMT) reported blowout earnings. As of this writing Wal-Mart stock is up $3. 20 or 5. 4% despite the fact that the final market is down. This is why I latterly 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 creating wealth by identifying change early. I had concluded that a change was happening at Wal-Mart but not fully recognized. However I’ll not pull the trigger to buy Wal-Mart since 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 a chance to buy the stock


The largest challenge to Wal-Mart s growth in the U. S. has come from dollar stores along with Dollar General (DG) Dollar Tree (DLTR) and Family Dollar (FDO). The merchandise inside the dollar stores has improved and they’re offering more food items. In my analysis the adverse effect of dollar stores on Wal-Mart has peaked


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Going All In On Young Voter Education 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 inside the earnings release is positive. My analysis in regards to 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 inside 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 has peaked when it comes to its impact on Wal-Mart there are probably to be many upgrades. The massive untold story about Wal-Mart is international expansion. Special Offer: Find great investment ideas in neglected stocks selling under $10 per share


Click here for gratis instant access to 9 Unloved Bargain Stocks. In the U. S. high unemployment is bringing more customers to Wal-Mart. Mexican Scandal The allegation is that Wal-Mart gave bribes worth $24 million to Mexican officials. Top executives of Wal-Mart stand accused of a cover-up. As distasteful as bribery is that’s routine in Mexico


In an exceedingly few minutes Wal-Mart has become among the biggest private employers in Mexico. Mexicans love Wal-Mart as the corporate has brought 15% to 20% lower prices on goods that almost all Mexicans use. Bribes look directed at mayors and city council members as well as low level bureaucrats who issue permits for brand spanking new stores


The Law Foreign Corrupt Practices Act (FCPA) became law in the U. S. in 1977. The act has two main provisions one in every of which concerns bribery of foreign officials. The law (15 U. S. C. § 78DD-1) states: It shall be unlawful for any issuer which has a category of securities registered pursuant to section 78l of this title or which is required to file reports under section 78o(d) of this title or for any officer director employee or agent of such issuer or any stockholder thereof acting on behalf of such issuer to utilize the mails or any means or instrumentality of interstate commerce corruptly in furtherance of a suggestion payment promise to pay or authorization of the payment of any money or offer gift promise to offer or authorization of the giving of anything of value to— (1) any foreign official for purposes of— (A) (i) influencing any act or decision of such foreign official in his official capacity (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official or (iii) securing any improper advantage; or (B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to impact or influence any act or decision of such government or instrumentality


The Exception In The Law The law provides for an exception in that the law does not apply to any payments for facilitating or expediting payment to a foreign official political party or party official the purpose of that’s to expedite or to secure the performance of a routine governmental action by a foreign official political party or party official


Could it’s that Wal-Mart simply made payment to expedite permits that it would have received anyways? If that is the case then the exception inside the law will apply. The Precedent In The Law The most recent precedent which will apply is a U. S. case against Germany s Siemens AG


Siemens plead guilty to improper payments totaling $1. 8 billion to officials in Argentina Bangladesh and Venezuela. Siemens cooperated with the us Department of Justice resulting in fines much under the $2. 7 billion allowable under U. S. law. The allegation inside the Wal-Mart case is for bribes of $24 million when compared with $1


8 billion for Siemens. $1 Equals $720 Wal-Mart has 3. 40 billion shares outstanding. The dip in Wal-Mart share price translated into market capitalization lack of $17. 27 billion dollars. Since the allegation was of bribes worth $24 million for every dollar in bribes Wal-Mart had lost $719. 66 in value. Overblow Fears In theory there was a risk that a criminal prosecution could cripple the company


However it is very important note that Wal-Mart is definitely one of the largest employers in both Mexico and the United States. With unemployment as high as that’s and upcoming elections in both Mexico and the U. S. it was difficult to see a scenario under which the governments would cripple Wal-Mart


The fears that the Mexican bribery scandal would damage Wal-Mart s brand were overblown. The history is replete of companies along with Avon (AVP) Daimler AG (the parent of Mercedes) Lucent (ALU) Monsanto (MON) Baker Hughs (BHI) Hewlett-Packard (HPQ) News Corporation (NWS) KBR (KBR) Kraft Foods (KFT) Dow Chemical (DOW) and a lot of others getting snarled in FCPA without their brand being damaged


FCPA is simply a huge story among the elite. Most of Wal-Mart s customers are working class families who aren’t prone to care about how Wal-Mart gained permits for construction of its stores in Mexico. So far as Wal-Mart s operations in Mexico are concerned they don’t seem to be prone to be affected because most Mexicans accept corruption as a way of life


Experience With FCPA My 30 years of experience inside the markets has repeatedly shown to me that whenever a firm is accused of violations of FCPA headlines are always scary but in the end the downdraft inside the stock invariably becomes a buying opportunity. My experience gave me the boldness to buy inside the face of scary headlines and equally scary pronouncements by some analysts


About Me: I am an engineer and nuclear physicist by background. I’ve got founded two Inc. 500 companies and have been considering over 50 entrepreneurial ventures. I am the manager investment officer at The Arora Report  which publishes four newsletters to help investors make the most of change. Please be happy to put in writing me at Nigam@TheAroraReport


com. You may follow me here and get email notification after I publish a brand new article. Disclosure: My hedge fund and subscribers to The Arora Report have an extended position in Wal-Mart

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