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NEW YORK (CNN/Money) -
Investors are uncertain about which way the economy will head in 2006. And so initial results for the holiday season -- which begins on the Friday after Thanksgiving -- were watched even more closely than usual this year.
At first glance, the results looked extremely positive. Various measures of total sales and credit-card purchases showed double-digit gains from last year's holiday season.
As analysts examined the data more closely, however, it became evident that the sales gains were distributed unevenly. Some mid-range clothing retail chains didn't benefit much. The big winners, by contrast, were online sellers, consumer-electronics stores and some of the big discounters.
Wal-Mart emerged as one of season's leaders, with a 4.3 percent gain in same-store sales for the month of November as a whole. Analysts attributed this to a renewed focus on the aggressive tactics that made the chain so successful.
To maximize its store traffic on Friday, Wal-Mart stores opened at 5:00 a.m., cut prices aggressively and pushed flashy items, such as a DVD players, video games and a $398 notebook computer.
In short, more determined discounting allowed the chain to gain ground on Target and other successful peers.
The bigger question, of course, is whether Wal-Mart figures to be successful beyond the current selling season. Moreover, analysts are divided over the question of Wal-Mart's prospects as a growth stock.
If you believe that the company can again reach a 12 percent-plus earnings growth rate and sustain it, then the shares seem like a significant bargain at their current price.
So it's worth taking a look at the arguments for the stock both pro and con.
There are basically two arguments against the stock. The first is the claim that Wal-Mart under-compensates its workers, offering inadequate health-insurance coverage, for instance. If there is pressure for Wal-Mart to improve its benefits, the company's profit margins could suffer.
The second is that Wal-Mart is having a harder and harder time matching the sales increases of previous years. Above-average growth is simply difficult to achieve as a company gets larger.
There may be some truth to both of these issues.
But it seems quite reasonable to expect that Wal-Mart can nevertheless surpass the basic growth stock hurdle. Technology can cut costs. Wal-Mart could shift its product mix to faster growing, higher margin items. And international expansion remains potentially lucrative.
As a result, Wal-Mart still seems capable of above-average total returns. The consensus projection for Wal-Mart's earnings growth is 14 percent annually over the next five years, and the shares yield 1.2 percent.
Wal-Mart (Research) stock has been rebounding from a low and has risen strongly over the past couple of months. Nonetheless, it still looks undervalued. At a current price of $50 a share, Wal-Mart trades at 16.7 times estimated earnings for the coming fiscal year that begins in February -- that's still very reasonable for superior return prospects.
Sivy on Stocks resources:
Sivy 70: America's best stocks
Guide to Growth
Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Tuesday.