Dear Mr. Berko:

Back in 2002, I bought 200 shares of Wal-Mart at $63, even though you told me that this was a bad idea. Well, the stock is holding steady in the $45-$48 range. Do you think the stock can move back to $63? And if so, would you recommend that I buy 200 more shares at this lower price? I will follow your advice this time.

D.V., Moline, Ill.

Dear D.V.:

I think you gotta be dumber than still water to buy 200 more shares of Wal-Mart Stores Inc. (WMT-$45.36), a company so big that its $1 billion in daily revenues and $1 billion in monthly net income qualifies it for nation-state status. Wal-Mart’s size is so staggering, so cavernous, so overwhelming, so towering and so imposing that most of Wall Street’s suits become insecure and get a case of fantods when they try to get a fix on WMT’s numbers.

The company has 4.2 billion shares (yes, billion) outstanding, 1,400 supercenters, 551 Sam’s Clubs, 85 Neighborhood Markets and 1,600 foreign stores in Latin America, Canada, Europe and Asia. The stock, which has had phenomenal performance, reached an all-time high of $71 in late 1999, but in the last few years, WMT has traded in a narrow range between $60 and $42.

Though I love to shop at Wal-Mart or Sam’s, I wouldn’t buy the stock, because I believe the bloom is off the tulip. From its humble beginnings in 1962, WMT has been ruthless in squeezing nickels and dimes into smaller denominations thanks to niggardly wages, intimidating suppliers and outsourcing product production to Third World sweatshops. No company can claim greater fidelity to its core value of low prices.

In the past 10 years, 27 grocery chains (Winn-Dixie is the latest casualty) have gone belly up, each claiming and blaming Wal-Mart as the big, bad bogeyman.

But WMT can’t continue to reduce prices on T-shirts, tires, tents, toupees and TVs, peas, pasta, pillows and pears, coffee, carrots, candy and cheese. After years of reducing prices, purportedly making employees work off the clock, supposedly hiring undocumented aliens and designing manipulative vendor-payment schemes, there’s just no more wiggle room left to lower its prices and maintain its net profit margins. Vendors can’t take another nickel cut in the products they sell to WMT.

WMT has been an excellent investment. However, I’m reminded of Carl Sagan’s musings about the exponential growth of a bacterium that reproduces by dividing itself into two every 15 minutes. That’s four doublings an hour and 96 doublings a day. Although a bacterium weighs less than a trillionth of a gram, its descendants, after one day of wild asexual abandon, will collectively weigh as much as the Rocky Mountains, in two days they will exceed the weight of our sun, and in four days everything in the known universe will be made of bacteria. But Sagan suggested that we don’t have to worry, because a confluence of events always arises to contain exponential growth

Wal-Mart is subject to the same limitations. In a finite world, soaring growth rates will self-destruct or be destroyed by a confluence of opposing events. A high growth rate eventually forges its own anchor.

Oh, WMT will continue to grow, but future growth will slow. Gross margins, operating margins and net profit margins just can’t get better than 25 percent, 6.8 percent and 3.8 percent respectively. There’s just no way to reduce costs and maintain the level of service and shopping comfort.

Wal-Mart’s future must derive from new store locations, and WMT hopes to open 350 stores a year. But finding acceptable locations and willing local governments is becoming increasingly difficult. Though WMT should continue to increase its profits, I think that growth will be at a much lower pace.

Perhaps to maintain its stock price, Wal-Mart might begin to boost its dividend as Microsoft has. Perhaps, in the near future, WMT might be classified not as a large-cap growth stock but rather as a large-cap growth and income stock. I certainly don’t see its stock price moving back to the $63 level this year or next.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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