NEW YORK — Investors have found plenty of reasons to be optimistic about Wal-Mart of late, as the company found the right mix of merchandise and marketing to complement its refocus on low prices at a time when Americans are seeking less expensive options.

Wal-Mart's shares have soared more than 30 percent since early September, while the stocks of many major retailers, including discount rival Target Corp., have fallen during the same period and the Dow Jones industrial average has slipped 6 percent.

"The economy got bad at exactly the perfect time" for Wal-Mart, said Patricia Edwards of investment manager Wentworth Hauser and Violich, which resumed buying Wal-Mart shares in November. "As Wal-Mart got their act together, the consumer needed to be able to trade down. Wal-Mart is providing a better shopping experience and is allowing people to save money."

Still, the world's largest retailer faces some challenges as shareholders gather for its annual meeting today in Arkansas. Those include soaring transportation costs that are squeezing profit margins and increasingly frugal customers. Last month, Wal-Mart gave a cautious outlook for the current quarter as it reported better-than-expected first-quarter profits.

"We have a sea change in the mind of the consumer," said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates, noting that the rough economy is pushing Americans to the point where they are buying the bare essentials. "Wal-Mart is the master of consumables, so it is benefiting."

The biggest risk to Wal-Mart, he said, is signs of strain in the financial well-being of its most loyal customers. Davidowitz estimated that 20 percent of Wal-Mart shoppers do not have bank accounts.

Another issue is that Wal-Mart supercenters, which have fueled the company's growth, are generally inconveniently located on the edge of towns, which Davidowitz said could hurt the retailer as shoppers look to shop locally to cut down on gas. He said he wants to see if Wal-Mart expands its Marketside stores beyond the four Phoenix-area locations set to open this fall. Those stores, at 20,000 square feet, are about half the size of Wal-Mart's Neighborhood Market stores, which are themselves smaller than the 100,000-square-foot supercenters.

Nevertheless, the company is still in an enviable spot — which it would not be had it not refocused on discounting, controlled inventory, cleaned up its stores and overhauled its clothing lines. Its "Save Money, Live Better" campaign is resonating with shoppers, apparel sales are improving and its expansion into trendier electronics like flat-panel TVs has lured shoppers away from competitors. Wal-Mart is paring down its supercenter expansion to improve sales at existing stores, and better tailoring its merchandise to local tastes.

Many analysts believe Wal-Mart is poised to gain even more market share in this weak economy, particularly from the government stimulus checks being sent out since they are targeting the retailer's most loyal shoppers.

Edwards thinks Wal-Mart can retain its more affluent shoppers even when the economy recovers, because the stores are nicer to shop at — tidier, with improved displays and customer service.

Wal-Mart's first-quarter performance, along with other low-price retailers, was among the few brighter spots for retailers. Its profits rose almost 7 percent, while department store chains J.C. Penney Co. and Kohl's Corp. recorded sharp declines. Target's earnings fell 9 percent, and analysts believe it is more vulnerable to the spending slowdown since 40 percent of its business is from home furnishings and apparel. That compares to Wal-Mart's 18 percent.

But Wal-Mart made clear in its first-quarter report that its low-income shoppers are having more trouble stretching their dollars to the next payday. It also called higher transportation costs "a potential headwind."

Despite that, investors have pushed Wal-Mart's shares up to about $57 from around $43 last September, after they had been depressed for two and half years. Shares of Target, which had long outperformed Wal-Mart, have dropped more than 17 percent to about $53 from $64 since early September.

A year ago, Wal-Mart shareholders were anxious about when business would rebound after two years of a zigzag course between upscale and discount goods that had slowed sales growth. Wal-Mart's shares also took a beating in part from a slew of negative headlines and censure from union-funded groups that say the company's healthcare benefits and wages are too skimpy.

Wal-Mart still has plenty of critics. Activist shareholders are offering eight proposals at the meeting. One from Harrington Investments, which focuses on socially responsible investing, wants the company to set up a human rights committee at the board level. Such proposals usually fail to win majority support.

Wal-Mart has "taken small steps, but the bottom line is they have a long way to go," said Stacie Lock Temple, a spokeswoman at Wal-Mart Watch, a union-backed group. She noted that the economic downturn has helped its business, but added that "Wal-Mart is contributing to a poor economy by the low wages it pays its workers."

But the criticism has eased since a year ago as Wal-Mart has worked to improve its image, and shoppers are buying in.