If you’ve been keeping tabs on the financial news lately, you might be feeling a bit anxious about venturing into stock investments. There’s constant chatter about tariffs, persistent inflation, and the looming specter of a recession trying to cast a shadow over your plans.
However, maintaining a long-term perspective is crucial. Yes, it can be tough to keep calm during periods of market volatility, but nobody can predict what the stock market will do in the short term. Historically, buying into solid companies and riding out the short-term ups and downs tends to reward those who hold on.
Take Walmart (WMT 2.56%) as a prime example. It’s been a powerhouse in the retail sector for years. While the retail space is fiercely competitive, Walmart continues to thrive, and here’s why I think it should be part of your investment portfolio.
1. Simple Business, Done Right
Plenty of companies aim to cut costs, but for Walmart, it’s a core aspect of their culture. Ever since they opened their first discount location in the early 1960s, keeping expenses low to offer customers unbeatable prices has been their mantra.
Finding a retailer that can consistently beat Walmart’s pricing is a rare feat. That’s precisely why they cater to over 250 million shoppers each week, both in-store and online. Their strategy is undeniably effective. This is reflected in their financial results—Walmart raked in over $680 billion in revenue last fiscal year, a solid 5.6% increase after accounting for currency fluctuations. Furthermore, their adjusted operating profit saw a 9.7% boost, reaching $29.7 billion.
2. Drawing in the Crowds
Although past performance doesn’t guarantee future success, Walmart’s strong position today bodes well for upcoming growth. Their strategy of leveraging ultra-low prices continually pulls in customers, especially during economically challenging times marked by inflation.
In the most recent fourth quarter, same-store sales in Walmart’s key U.S. market rose by 4.6%, with a significant portion—2.8 percentage points—stemming from increased foot traffic. Walmart is not only expanding its market share over competitors but is also attracting a wealthier clientele.
Amidst economic uncertainties from rising tariffs, higher operational costs, and the chance of a recession, Walmart’s focus on affordability strategically positions it to grow its customer base and revenue. It stands out as one of the few businesses that generally perform well even when the economy takes a dip.
3. Eyes on Tomorrow
Walmart’s leadership isn’t just sitting back and enjoying past successes. They’re making strategic investments in tech that keep them competitive and forward-looking. This year, they plan to allocate 3% to 3.5% of their sales to capital expenditures—a substantial commitment given their sales approaching $700 billion.
These investments are aimed at enhancing the consumer experience, including options like online ordering with store pickups, and many locations now offer same-day delivery. Moreover, Walmart is diversifying its services with offerings like Walmart+, a subscription service granting perks like free shipping, expedited checkout, and cheaper fuel.
Having a massive customer base gives Walmart access to a treasure trove of data which they’re leveraging in their advertising sector. While it currently represents less than 1% of annual revenues, this segment grew by 27% last year and is poised to become a significant revenue stream down the line, albeit with some time and effort.
Wrapping It All Up
Walmart’s appeal lies in its unbeatable low prices, convenience, and a proactive management team focused on future growth, making it a compelling option for long-term investors.
Naturally, the stock price reflects high investor confidence, with shares climbing nearly 39% over the past year, outperforming the S&P 500 index by roughly 20 percentage points as of mid-March.
Currently, Walmart’s shares are trading at a price-to-earnings (P/E) ratio of 35, compared to the S&P 500’s 28. If this valuation is a concern, you might consider adopting a dollar-cost averaging strategy. By investing a fixed amount at regular intervals, you can gradually build your position, smoothing out the fluctuations over time in your long-term hold of Walmart stocks.
