By MoneyMorning.com.au

It’s a bad time for the resources industry.

Who says?

Everyone says. So it must be true.

But what if it isn’t true?

We’re glad you asked. Everywhere you look, folks are writing off the resource sector and Australian resource stocks.

But what if, rather than being the death of Australian resource stocks, this was actually the time to invest?

The latest news from mining giant Rio Tinto [ASX: RIO] may suggest things aren’t so bad after all…

Yesterday Rio Tinto announced:

‘Rio Tinto has set out its breakthrough plan to optimise the growth of its world-class iron ore business in Western Australia. Mine production capacity will rapidly increase towards 360 million tonnes a year (Mt/a) at a significantly lower capital cost per tonne than originally planned.‘

It’s hard to pick any holes in that news.

That’s a big increase in production. Rio forecasts to export just 265 million tonnes this year. So that’s a one-third increase.

If the increased production came without the margin improvement we would have wondered if Rio was just trying to dump iron ore on the market before a potential fall in iron ore prices.

But right now that doesn’t seem to be the case. In fact, the iron ore price has been surprisingly strong in recent months.

Record Imports for China

The following chart shows the recent state of play:

Source: Index Mundi
Click to enlarge

The iron ore price peaked in 2011. It fell to the recent low point towards the end of last year. Although the chart doesn’t show it, the iron ore price fell below US$90.

Things got so bad for the iron ore producers that Fortescue Metals [ASX: FMG] appeared to be in serious danger of falling foul of its debt covenants. That could have put Fortescue into a real financial fix.

Fortunately for them, they managed to refinance their debt and the share price has more than doubled since.

Now, as with any commodity price, the current price doesn’t always reflect the future price. Things can change. The big buyer of iron ore is still China. No one can guarantee that China will keep buying.

But if the September import numbers are anything to go by, it doesn’t look like China is about to stop iron ore imports or steel production. As Mining.com reported:

‘China imported a new all-time high of 74.58 million tonnes of iron ore during last month (September), up 8% from August and up a surprisingly robust 15% compared to last year.‘

So much for the end of the resources boom.

Back to Basics for Resource Investing

Importantly, this news comes at a time when most people are still extremely negative on resource stocks.

And look, we get that. As bullish as we are on the market, we get it why people are nervous. Resource investors have seen their fair share of booms and busts over the past 10 years.

Then of course there’s the view of resource guru Rick Rule (a view we completely agree with) who says that probably 600 of the resource stocks listed on the ASX are worthless.

The tricky part is to figure out just which ones are worthless and which have value. That’s no easy task.

But even so, we’ve assigned that job to Diggers and Drillers resources analyst Jason Stevenson. He’s on the case now figuring out which stocks investors should buy as they rebuild their resource stock portfolio.

In truth it’s a case of going back to basics. We asked Jason to run his slide rule over two types of resource stock – blue-chip and speculative.

We want to know which blue-chip Aussie resources stock is the ‘best of breed’ on the market right now. We want to know which Aussie resources stock an investor should buy if they’re starting a portfolio from scratch. Jason will share his view with readers in the next issue of Diggers and Drillers.

But that’s not all. We also want to know which speculative stock is the best to own. As we said above, Rick Rule says 600 Aussie resource stocks are worth nothing. It’s up to Jason to filter through the other roughly 600 resource stocks to pick out the winners.

There have been plenty of false dawns for resources stocks this year alone. But if a resources stock rebound is on the way, we want to make sure you’re in the best position to make the most of it.

Cheers,
Kris+

Special Report: The ‘Wonder Weld’ That Could Triple Your Money

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By MoneyMorning.com.au

By MoneyMorning.com.au

Today I’d like to share my latest thoughts on the matter. And please remember, I have no hidden agenda here. I found myself in the midst of America’s energy comeback several years ago – at the heart of which are technologies like fracking.

I’ve spent countless hours kicking rocks on drill sites, sitting down with engineers in board rooms and reading lengthy research – and you can rest assured the comments below are my honest, ‘dining room table’ feelings.

That said, let’s get down to the latest frack talk!

First up, if you’re unfamiliar with what fracking is it’s a process used by oil and gas drillers to unlock shale formations. A quick search on the pros/cons of fracking and you’re bound to find ample backup for both camps.

However, from my experience I see a lot more egregious lies coming from the environmental side than the ‘big oil’ side. Today I’d like to set the spin aside, and keep the record straight.

The latest anti-fracking item that arrived in my inbox was from MoveOn.org…. they wrote:

‘Tap water so contaminated you can light it on fire. Cancer-causing chemicals released into drinking water sources. Air pollution. Economic damage. Climate change. These are just some of the effects of hydraulic fracturing‘

[Please read the paragraph above again, for effect.]

Ahem. That paragraph is fully-laced with lies. Anti-frackers apparently need to do their homework or wash their mouths out with soap – whichever comes first is fine by me. With the paragraph above, it’s almost amazing someone would put their name on it. Of course it was signed ‘Victoria, Manny, Maria, David, and the rest of the team’ so maybe the accountability is spread thin at MoveOn.

Looking at just that recent example…

Let’s Set the Record Straight, Shall We?

First off, tap water has never been contaminated by fracking nor has fracking caused tap water to light on fire. This is a lie and was propagated by the Gasland documentary. But if you Google such things as ‘Gasland debunked’ you’ll realize the example of any lightable tap water was not, whatsoever, related to fracking.

Plus, it’s the same answer for chemicals released into drinking water sources. There has been absolutely no known incident of freshwater contamination. And just think about that, there are thousands of shale wells being drilled per year – add em up over the years and we’re talking about much more than 10,000 wells. In which, no attributable freshwater contamination has occurred. None. Zero. Zilch.

As for ‘air pollution’, that’s a standard issue. Drill rigs, truck traffic and other related industry action will cause regular amounts of air pollution. That’s just the case with any industrial action. There’s also the case of flaring natural gas, that’s certainly an air pollution issue, too. But, again, that has nothing to do with fracking like the sentence above implies.

As for ‘economic damage’, that’s downright laughable. The benefits to America’s economy from the rebirth of oil and gas are clear. Hundreds of thousands of jobs created or improved, more manufacturing, increased US exports, cheap residential energy and relatively stable oil prices (for stable gasoline prices) – add it all up and America’s energy renaissance is a huge shot in the arm to the economy.

Last but not least ‘climate change’. This is also a very strange reference, but typical of environmental spin. Here’s the thing: fracking has unleashed massive amounts of cleaner-burning natural gas.

And in recent years – directly tied to more energy efficiency and cleaner burning natural gas – the US has been lowering its total CO2 levels. So to say that ‘fracking’ is increasing the risk of climate change is categorically wrong. If anything it’s helping move the needle in the right direction as a bridge fuel.

Add it all up and I think the pendulum has swung a little far in favour of the environmental side of things. And this is coming from a guy that double majored in college, one major being Environmental Economics. Lots of hippies/environmentalists in those classes, to be sure! But nowadays many of the herd has gone astray – the facts are stripped away for agenda-seeking fiction.

Getting back to my water pollution comment above, here’s what I mean…

Recall, fracking never set tap water ablaze, it’s also never (and I mean NEVER) been associated with contaminated fresh water.

Fracking happens 7-10,000 feet below the earth’s surface, while the water table and clean water sources rarely stretch below 500ft. That means there’s over 5,000 feet (approximately a mile) of impermeable rock in between these fracking operations and water sources. (See the nearby image for reference.)

Click to enlarge

I was onsite with a big oil company a few years ago asking about how much power each ‘frack stage’ has, as in ‘what’s the reach of the fracture that’s created?’ The geologist/engineer on site said the fractures can stretch, on average, 150ft from the horizontal section of the well.

When I asked if they could ever ‘frack’ all the way up to the surface he essentially laughed and said ‘we wish’. All joking aside, these fracking operations are happening well below fresh water aquifers and other water sources, to an extent that contamination won’t likely occur.

The main concern, from my perch, would be that drilling crews and surface operations need to be careful above ground, because they could do more contamination above ground with a leaky car engine or spill then you could with a fracking stage.

It’s funny, today is Thanksgiving and I remember clearly last year when my family members called me to the table after dinner to explain this situation to them. All it took was a little common sense and explanation to show that America’s shale boom is no more a threat to the environment than any other industry – but yet its economic benefit is unexpectedly huge.

Add it all up and the environmental pendulum has swung too far, to the point where groups like MoveOn or others will blatantly lie just to get more people to slap a ‘stop fracking now’ sticker on their bumpers or make a donation. It’s disgraceful.

Here’s another quick anecdote to prove my point…

Years ago we made a video to explain fracking, and posted it on Youtube. Now remember, I don’t have any agenda with this stuff. My point was to make sure that investors, like you and me, knew what they are actually buying in to.

I’m a firm believer in making sure you know what a company does before you invest in it. Accordingly, I wanted to share what I learned about America’s new shale revolution – fracking in particular – with anyone interested. Again, there’s no hidden agenda here. I don’t work for ‘big oil’. I’m just a dude that likes investing in moneymakers – and I like to know HOW the money making works.

Here’s the Takeaway

So the video gets uploaded into the ether of the internet. And wouldn’t you know it we start getting all kinds of hate brewing in the commentary, and ‘dislikes’ galore.

Again, I don’t know who these folks are, or what they are smoking – but the plague seems to be contagious. One comment reads ‘Propaganda in its purest form‘. While another says, ‘this is not the entire truth sir, the negative facts are being censored big time. In other words, its bullshit.‘

The commenter is probably referring to the ‘facts’ you’ll find in your MoveOn.org email box.

Yikes.

In the meantime, I frequently muddy my boots and talk to the guys that are doing this oil and gas work all the time. They are all very smart folks. There’s a lot of geology, geophysics, engineering, math and science involved in today’s oil industry.

Frankly I’d love to get some of the geologists/engineers/scientists I’ve talked with in a room with a lot of the gung-ho environmentalists – I think we’d have a very lopsided discussion (in favour of the smart oil and gas folks!)

That’s all I’ve got for today, I thought I’d share some of my dinner table insight – to make sure if any conversation bubbles up at your table you’ll have some talking points to back up America’s energy comeback.

In the meantime, let’s give thanks for cheap, abundant energy and the technology that makes it possible. Otherwise we’d be eating raw turkey on a cold autumn day!

Matt Insley
Contributing Editor, Money Morning

Publisher’s Note: A New Spin on Fracking originally appeared in The Daily Reckoning USA.

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By MoneyMorning.com.au

By Mitchell Clark, B.Comm.

There are lots of companies but very few stocks I like in this stock market, because stocks have already gone up in value so tremendously.

Countless large-caps provided excellent returns this year, and many of them are old brands that still offer meaningful dividend yields. What’s transpired with the equity market this year has been truly amazing and practically, I don’t think the run is over just yet.

Cracker Barrel Old Country Store, Inc. (CBRL) has a 52-week trading range of $60.07 to $118.44 and a forward price-to-earnings (P/E) ratio of 18.46, according to Thomson Reuters. And guess where the stock is now—right at its all-time record high, up approximately 84% (not including dividends) since this time last year. All this from a mature restaurant brand.

Johnson & Johnson (JNJ), one of my key benchmark stocks and the kind of company that’s welcome in any long-term equity market portfolio, has had a really good year. Its capital appreciation is reminiscent of its performance in the late 90s.

Many blue chips trade similarly to Cracker Barrel and Johnson & Johnson: they go through long periods of consolidation providing minimal capital gains, and then they explode in trading action, typically associated with technology stocks. (See “Why I Like This Blue Chip So Much [55th Dividend Increase Just Announced].”)

So with the huge price moves, the case for a major retrenchment/correction/consolidation in the equity market is very solid. But there needs to be a catalyst for this to happen. The equity market is overbought and looking tired, but there is still a strong willingness on the part of institutional investors to buy on the right news.

I don’t think the catalyst for a correction will be corporate-led. Balance sheets continue to grow stronger and, generally speaking, the sense that I got from the last couple of earnings seasons is that business conditions and corporate outlooks are improving going into 2014.

A geopolitical event could certainly be a catalyst for an equity market correction, but this can’t be predicted.

Equity markets have a tendency to require a big reason for a change in trend. The most powerful force in stocks is monetary policy, but the Street already expects quantitative easing to be tapered. While there will be pressure on interest rates by the marketplace, the central bank continues to chime that the Fed funds rate will be staying put for the foreseeable future.

So what’s left is the potential for non-central bank policymakers to act (or not to act) in a manner that wreaks havoc with equity market confidence once again. The political stalemate regarding the debt ceiling is a perfect example.

Given current information, I think the next major retrenchment in the equity market will be a buying opportunity, and I’m still of the view that investors can stick to the market’s existing winners in large-caps. The big, brand-name companies have the pricing power and economies of scale to accelerate earnings and dividend payments quickly on any uptick in business conditions.

This article “Need to Know” Info About the Coming Retrenchment is originally published at Profitconfidential

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By CentralBankNews.info
    Tunisia’s central bank held its key interest rate steady at 4.0 percent and appealed for political stability and security along with measures to control the current account deficit, public finances and thus avoid “runaway inflation.”
    Although Tunisia’s headline inflation rate was stable at 5.8 percent in October and September, the Central Bank of Tunisia said this should not obscure an acceleration of core inflation which rose to 6.9 percent in October from 6.8 percent the previous month.
    Tunisia’s central bank last raised its rate by 25 basis points in March to control inflation.
    The central bank also said in a statement following its board meeting on Nov. 27 that a revision of economic growth estimates for 2013 to 3.0 percent from 3.6 percent now “remains somewhat optimistic since its achievement requires no less than a 3.7 percent growth over the fourth quarter of this year.”
  Tunisia’s Gross Domestic Product expanded by an annual 2.4 percent in the third quarter, down from 3.2 percent in the second quarter, due to a contraction in agriculture and the mining sector while manufacturing essentially stagnated.

    The central bank expressed its concern over a further increase in the unemployment rate of graduates with higher eduction in the third quarter to 33.5 percent, or 248,000, despite a slight decline in the overall unemployment rate to 15.7 percent from 15.9 percent in the second quarter.
    The central bank also noted the current account deficit of 6.5 percent of GDP in the first 10 months of the year compared with 6.9 percent a year earlier despite higher exports and lower imports. This means foreign currency reserves have to be tapped.
    Tunisia’s foreign reserves rose to 11.673 billion dinars as of Nov. 25 – equivalent to 107 days of imports – compared with 9.486 billion on the same date in 2012.
    Last week the Qatar National Bank, part-owned by the Gulf state’s sovereign wealth fund, gave Tunisia a $500 million deposit to support its foreign currency reserves.

    www.CentralBankNews.info
   
   

By Tarek Amara

Tunisia c.bank chief says ready to intervene vs inflation

London Gold Market Report

from Adrian Ash

BullionVault

Thurs 28 Nov 09:45 EST

WHOLESALE gold rose in price in London trade Thursday, recovering last week’s finish of $1243 per ounce to stand some 0.6% above an overnight low.

Asian and European stock markets also rose following Wall Street’s new record-high finish before today’s Thanksgiving holiday.

 Commodities slipped further, however, while the British Pound rose to new 2013 highs after the Bank of England announced an early end to “funding for lending” for UK mortgage providers.

 Gold in Sterling dipped to fresh 3-year lows beneath £758.50 per ounce.

 “The yellow metal retraced [Wednesday’s early gains] in the face of supportive factors,” says a note from refining and finance group MKS, “including the weaker US Dollar.

 “That really portrays general sentiment for investors [towards buying gold] at the moment.”

 Wednesday saw gold “[find] only short-term support” from China’s latest gold import data, says Germany’s Commerzbank in a note.

 Now the world’s No.1 gold consumer market, Chinese gold buyers may get 1500 or perhaps 1800 tonnes of supply in 2013, according to a new analysis today.

 Shanghai premiums on gold rose Thursday to $9 per ounce over London prices from $7 at the start of this week.

 “Physical demand for gold is still improving,” says Standard Bank’s commodity team meantime. But despite much heavier trading on the Shanghai Gold Exchange today, volumes still “don’t seem big enough” to support prices, it adds.

 Only if demand returns to June/July levels, Standard Bank concludes, “it may start forcing short-covering in the futures market,” with bets against higher prices closed at a loss.

 “A large short position,” agrees Australia’s ANZ Bank in a note, “remains among the speculative community.

 “Overnight price action looks like long-side profit-taking from short-term players.”

 Gold futures trading was sharply higher ahead of the Thanksgiving shutdown on Wednesday, with Reuters reporting volume 40% above the last month’s daily average.

 “Turnover [was] lifted in part by the December-February rollover,” says INTL FCStone’s Edward Meir, pointing to traders wanting to maintain their positions from one quarterly contract to the next.

 Nearer-term, “Precious metals markets are likely to be subdued due to the Thanksgiving holiday,” Bloomberg quotes Joni Teves at Swiss investment and bullion bank UBS.

 “The next key event risk to watch out for is the [US] nonfarm payrolls print next Friday…the last employment report before the final FOMC meeting for the year.”

 Looking at the odds of higher US interest rates ahead, “Why do you need something which yields nothing and is giving you a negative return?” the newswire also quotes John Stephenson at the $2.7 billion First Asset Investment Management Inc. in Toronto.

 “When we do get tapering [of the US Fed’s quantitative easing] the underlying message is the economy has improved well enough that we don’t need all this stimulus.”

 Consumers in India meantime, the former world No.1, today saw gold quotes hold at $130 per ounce above the world’s benchmark of London settlement, says Reuters.

 “Demand has picked up a little bit,” the newswire quotes Bachhraj Bamalwa of the All India Gems & Jewellery Trade Federation.

 But thanks to the Indian governments ongoing import restrictions, aimed at reducing the pressure which gold demand puts on the country’s trade deficit, “Supplies are tight so premiums have jumped,” Bamalwa says.

Adrian Ash

BullionVault

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(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By CentralBankNews.info
    Fiji’s central bank maintained its overnight policy rate (OPR) steady at 0.5 percent, saying a soft global economic climate means growth has to be driven by domestic forces and the current policy stance remains appropriate and complementary to the government’s policy initiatives.
    The Reserve Bank of Fiji, which has maintained rates since December 2011, said consumption and investment activity remain buoyant, supported by adequate liquidity and low interest rates.
   “The growth forecast for 2014 is now expected to be higher than the 3.0 percent estimated prior to announcement of the 2014 National Budget and commended Government for the increased capital expenditure and the continuation of the structural reforms,” said the bank’s governor, Barry Whiteside.
    In October the central bank revised upwards its forecast for growth this year to 3.6 percent, up from a forecast of 3.2 percent in August, and also raised its 2014 growth forecast to 3.0 percent from an earlier 2.5 percent. In 2012 Fiji’s Gross Domestic Product grew by an estimated 2.2 percent.
    Higher government spending will boost imports and this will pose a downside risk to Fiji’s balance of payments next year, but Whiteside added that foreign reserves are at record highs and expected to remain comfortable.

    Fiji’s foreign reserves were US$1.870 billion, up from $1.783 billion in September, sufficient to cover 5.1 months of imports, the bank said.
    Fiji’s inflation rate rose to 3.3 percent in October from 3.1 percent the previous month, largely due to higher prices of certain food and alcohol items. 
    The Reserve Bank forecast year-end inflation of 3.0 percent in October.

    www.CentralBankNews.info
    
  

By CentralBankNews.info
    Albania’s central bank cut its benchmark repurchase rate by another 25 basis points to 3.25 percent to help stimulate economic growth and meet the bank’s inflation target amid fiscal tightening.
    The Bank of Albania, which has cut its rate by 75 basis points this year, said it expects inflationary pressures to remain weak due to low demand-side pressures as the Albanian economy continues to operate below its potential.
    “Economic growth its expected to remain weak and not generate inflationary pressures,” the bank said after meeting of its supervisory council on Nov. 27.
    Albania’s headline inflation rate was stable at 1.7 percent in October and September, below the central bank’s target of end-year inflation of 3.0 percent, plus/minus one percentage point.
    Albania’s Gross Domestic Product expanded by 1.0 percent in the second quarter from the first quarter for annual growth of 1.1 percent, down from 1.8 percent in the first quarter.
    The central bank said the government’s fiscal stimulus faded significantly in the third quarter and high levels of public debt is limiting the ability of fiscal policy to support economic activity.

    Next year the fiscal contraction is expected to continue, and while this will influence economic activity, lower public borrowing should also make more room for higher private sector borrowing.
    “Given the expected direction for the next fiscal year, this action aims to maintain macroeconomic stimulus in the economy and create more favorable conditions for meeting our inflation target,” the bank said, adding it considers “fiscal correction in the next year is necessary to restore the public debt to more sustainable parameters.”
    Demand for credit in Albania is low with credit to the private sector down by 2.6 percent at the end of September compared with last year and the banking system has adopted a conservative approach to lending in response to the growth of bad loans on their balance sheets and tighter policies imposed by parent banks.
   
    www.CentralBankNews.info

By Michael Lombardi, MBA

Key stock indices are roaring higher each day. The S&P 500 is breaking through to new records; the Dow Jones Industrial Average sits above the 16,000 level, and the NASDAQ Composite Index trades at a level not seen since the Tech Boom. Sadly, as all of this happens, the one fundamental that has historically driven stock prices higher—corporate earnings—is missing from the equation.

In these pages, I have often harped on about how companies in key stock indices are buying back their shares at a record pace. I consider this “financial engineering,” because at the very core, what a stock buyback does is make corporate earnings per share look better.

This week, my research team took a look at the Dow Jones Industrial Average companies and how many were buying back their shares. Their findings reveal 28 out of the 30 companies on the index bought back shares over the past 12 months.

From the third quarter of 2012 to the third quarter of 2013, Dow Jones Industrial Average companies collectively bought an outstanding 2.33 billion of their own shares. Effectively, they removed over two billion shares from the market!

What did these stock buybacks do to the companies’ corporate earnings?

Because of the stock buybacks, 70% of all the companies in the Dow Jones Industrial Average were able to show better per-share corporate earnings. For example, for the third quarter of this year, AT&T Inc. (NYSE/T) reported a net income of $0.72 per share, an improvement of 14.3% from the same quarter in 2012. But if AT&T didn’t reduce its share count during that period via its stock buyback program, corporate earnings per share would have been $0.66 in the third quarter of 2013, only 4.7% higher than last year. (Source: AT&T Inc. web site, last accessed November 26, 2013.)

AT&T is just one example where “financial engineering” to prop up per-share corporate earnings has been successful. There are may other cases.

But the trick of buying back stock to push per-share corporate earnings higher is running out of steam. (After all, how much stock can a company buy back before there is no stock left?) Going forward, the stage for key stock indices doesn’t look very stable. As of November 22, 89 companies on the S&P 500 have issued negative guidance about their corporate earnings for the fourth quarter. Meanwhile, only 12 have issued positive guidance. (Source: FactSet, November 22, 2013.)

If there is even a single investor out there who believes the fundamentals are no longer important—that corporate earnings growth isn’t needed for the stock market to rise—they are fooling themselves. At this point, the house of cards can fall at any time.

What He Said:

“The conversation at parties is no longer about the stock market, it’s about real estate. ‘Our home has gone up this much,’ or ‘our country home has doubled in price.’ Looking around today it would be very difficult to find people who believe that one day it could be out of vogue to own real estate because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves.” Michael Lombardi in Profit Confidential, June 6, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

This article Biggest Case of “Financial Engineering” in History? is originally published at Profitconfidential

By George Leong, B.Comm.

Wal-Mart Stores, Inc. (NYSE/WMT) is signaling its intent on conquering the global low-cost (discount) retail market following the announcement that Doug McMillon will become the new CEO and president of the world’s biggest and most influential retailer, boasting nearly $500 billion dollars in annual sales and employing over two million people worldwide.

The change at this time makes sense as Wal-Mart tries to expand its operations globally, especially in China. McMillon was a fitting candidate, as he had been CEO of Wal-Mart International and understands what it takes to grow a company internationally.

Wal-Mart operates around 11,096 stores in 27 countries worldwide. Sales in the United States account for the vast majority of its total sales stream, but international sales, at $33.1 billion in the fiscal third quarter, accounted for nearly 25% of total sales. This means that there are opportunities here.

While Wal-Mart is the “Best of Breed” and a buying opportunity in the discount retail sector, the company’s real underlying potential growth lies in its ability to expand its international sales, which is where McMillon comes in.

Chart courtesy of www.StockCharts.com

In the fiscal third quarter, operating income rose 5.8% in the U.S., but saw eight-percent growth in its international stores on a constant currency basis. The profitability of its international stores indicates why the expansion in places such as China, Brazil, India, and other emerging markets is so critical.

Wal-Mart initially ventured into China in 1996 and is currently operating Supercenters, Sam’s Clubs, and Neighborhood Markets. The retail footprint comprises about 401 units in China, with 356 under the Wal-Mart Supercenter operation. Stores are situated in over 150 cities.

In China, with the focus on driving up domestic consumer spending, Wal-Mart has a great opportunity to reap the benefits. And with the proposed change to the one-child policy, we could see an even bigger consumer market open in China and that means sales.

In the works are many more stores in China expected to be opened over the next few years as Wal-Mart gets set to welcome the growing income levels in China and the new propensity to spend. (Read “China’s Expected Baby Boom a Boon for U.S. Business.”)

Take a look at the potential in China and other emerging markets. In the United States, the company operates about 4,786 retail units as of October 31, 2013. (Source: Wal-Mart Stores, Inc. web site, last accessed November 25, 2013.) Think of the potential in China with its 1.3 billion people and a middle class that is larger than the entire population of the U.S. While consumer spending is not at the same level as the U.S., the growth is there, and we will see it over the next decade. I wouldn’t be surprised to eventually see over 1,000 Wal-Mart stores in China.

And if the company can ever successfully grow its operations in India, another emerging market with about one billion people, the stock could return some massive numbers going forward under McMillon.

This article What the Changing of the Guard at Wal-Mart Means for the Stock is originally published at Profitconfidential