Wal-Mart scrutinized on labor standards… but is the stock cheap? (WMT)

There’s mounting pressure for large multinationals to report to their shareholders on the working standards at their international suppliers. On 5/30, the New York Times noted that Wal-Mart (NYSE: WMT) is the latest to face these questions:

At its annual shareholder meeting on Friday, the New York City pension funds, which own a small percentage of shares in Wal-Mart, plan to ask the company to require vendors to publish annual reports detailing working conditions in their factories.

Proponents of these new corporate governance measures suggest that labor standards at suppliers often do not meet local laws:

Kalpona Akter, a Bangladeshi labor organizer who will present the proposal at the meeting in Fayetteville, Ark., complained that many of the Bangladesh factories that produced goods for Wal-Mart mistreated their workers.

At Wal-Mart suppliers, “very often, first of all, the factory does not enforce the law” regarding minimum wages, she said.

“Though the minimum salary has been cleared by the government, and many factories implemented that,” she said, “we haven’t seen any Wal-Mart suppliers giving a living wage to workers.”

Though Wal-Mart sometimes sends auditors to check on working conditions, “when the auditor goes to the factory, the worker is coached by the management to tell lies in front of the auditors — that they are being paid living wages, that they are not being harassed,” she said.

The proposal asks

vendors to publish yearly reports that “include the supplier’s objective assessments and measurements of performance on workplace safety, and human and worker rights, using internationally recognized standards, indicators and measurement protocols.”

Meanwhile, Andrew Tobias notes the potential upside in a long-dated WMT options strategy:

What if a year and a half from now Wal-Mart were earning 10% more than it is today, and the market were valuing the company at 14 times earnings instead of 11.92 times?

I’m not saying any of that will happen – what the heck do I know? – but if it did, that would push last night’s $54.56 share price up to $70.48.

Which would push the value of the January 2013 option (that gives you the right to buy 100 shares at $60) up to $1,048 ($70.48 minus $60 times 100) . . . compared with the $225 you would have paid for it last night.

Will you in fact quadruple your money with this speculation?  I do not know. Is it worth considering with a little of the money you can truly afford to lose – if you have any such money?  Just might be.

Covestor models that hold WMT as of 5/30 include:

  • Relative Value by Quantemonics
  • Christian Agape Hedged Equity and Hedged Equity by Swan Asset Management
  • Domestic Dividend by Harvest Financial Partners
  • Large Cap Value by Bristlecone Value Partners


“Wal-Mart Is Being Pressed to Disclose How Global Suppliers Treat Workers” Stephanie Clifford. The New York Times, 5/30. https://www.nytimes.com/2011/05/31/business/31walmart.html?_r=1&ref=business

“14 Times Earnings?” Andrew Tobias. 5/26. http://www.andrewtobias.com/cgi-local/display_col.pl?110526