Is Wal-Mart Stock Peaking?

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"Consumers are worried, and they're going to be looking for more ways to save money," says Lyn White, a portfolio manager at Christiana Bank & Trust. "We've only started to see the beginning of the consumer shifting away from [more upscale rivals like] Target and the Gap (GPS)," she argues.

Boosted by the Stimulus

Recent sales figures at Wal-Mart have been impressive, particularly in May when consumers began to spend federal rebate checks designed to stimulate the economy. May same-store sales, excluding gas, were up 4.4% from a year ago, nearly double the chain's most optimistic predictions.

Those, like White, who are bullish on Wal-Mart's stock believe the chain will continue to see these positive trends, particularly if gas prices remain high and the weak economy makes Americans anxious about the job market. But investors say Wal-Mart has other advantages, too.

Huntington's Hardy likes the consistency of Wal-Mart's earnings and revenue growth. In uncertain times, "Wal-Mart is one thing that you can set your watch by."

Many investors argue Wal-Mart has learned lessons from past missteps. It has slowed store growth in the U.S.—which was providing diminishing returns—and focused on growth overseas.

Clout in Keeping Prices Low

At a time when inflation is a serious threat, Wal-Mart's size gives it purchasing power, "an advantage over smaller retailers," White says. And, she adds, after failed attempts to sell to more affluent consumers—like its brief stab at selling sushi—Wal-Mart has returned to what it does best: selling basic goods at low prices.

But given the stock's strong run, there are plenty of doubters.

"It's priced for perfection right now," says Georges Yared, of Yared Investment Research . "Any minor slip-up [could] rock the stock." He says American consumers might be looking for bargains at Wal-Mart now, but that's not "sustainable long term."

Utopia Funds (UTGRX) portfolio manager Paul Sutherland says "frugality" is coming into style, which helps Wal-Mart. "But it's already in the [stock] price," which he says is "expensive."

Will Buffett Stay?

Plus, sooner or later, Wal-Mart's rivals will catch on, and start cutting prices to keep customers, Sutherland says. Competitors also have the advantage that Wal-Mart offers a "not very pleasant shopping experience," according to Sutherland.

For decades, Wal-Mart was a favorite of growth-oriented investors as the chain rapidly opened new stores. Then, value fund manager Becker says, as growth in the U.S. slowed, growth investors fled the stock, and shares stagnated. "It went through a no-man's land, where it wasn't growth and it wasn't value," Becker says.

When the stock got cheap, value investors piled in, lifting the shares. But a key question is how long Buffett and other value investors hold on to their Wal-Mart shares despite its now more expensive valuation. The danger is that results falter and this time value investors leave the stock en masse, pushing Wal-Mart shares into yet another twilight zone.

For now, though, Wal-Mart has a precious commodity: momentum. The chain's recent success makes the stock attractive to short-term buyers even if, by most value measures, the stock is no longer an obvious bargain. Value investors may choose to keep their wallets shut until the next time the stock gets a decent markdown.

Steverman is a reporter for BusinessWeek's Investing channel.