The stock market renewed its worries recently as two banks collapsed, raising fears about this spreading throughout the financial system like it did during the Great Recession. Over the past year, the S&P 500 has dropped by more than 12%. But during these uncertain times, astute investors can also pounce on opportunities.
Walmart (WMT 1.20%), the world's largest retailer, hasn't fallen as sharply as the overall market. The stock has declined by 4% during the past 12 months, but the share price remains 13% lower than the all-time high reached in early 2022. That makes this an opportune time to explore Walmart's long-term prospects to see if the share price represents a buying opportunity.
Image source: Getty Images.
Consumers trade down
Walmart has a long track record of keeping costs down to maintain ultra-low prices for its customers. This has been perfected over the last six decades since opening its first discount store.
Customers know they can go to Walmart for rock-bottom prices. That's always appealing but never more so than during tough economic times. Many economists continue to forecast a U.S. recession sometime this year, and the banking situation could quicken the pace as lenders become more cautious. During these times, consumers typically trade down to seek values at places like Walmart.
For instance, sales growth accelerated during the early days of the pandemic. In fiscal 2021, which ended on Jan. 31, 2021, Walmart's U.S. stores produced an 8.6% same-store sales (comps) increase. That bodes well for the company in the event of an economic slowdown. Some people were disappointed by management's fiscal 2024 guidance, which called for U.S. comps to increase by 2% to 2.5%.
I'm more sanguine. Walmart continued to gain market share in groceries, a competitive area, that will benefit the company over the long haul.
Investing for the future
Fortunately, Walmart isn't standing still in the face of intense online competition from the likes of behemoth Amazon (NASDAQ: AMZN). Management launched its first e-commerce sites in 2000, and it has continued to invest in technology.
This includes Walmart+, its subscription service that offers access to the streaming service Paramount+, discount gas, and convenient delivery, among other benefits. In its latest fiscal year, covering the period that ended on Jan. 31, e-commerce sales grew by 12%.
Walmart has outlasted rivals for decades. Not standing pat will allow the company to not only survive but continue thriving in the coming years.
Regular payments
While Walmart continues to invest for the future, including an advertising business that grew by almost 30% to $2.7 billion last year, the board of directors has been able to raise dividends annually for decades.
Since 1974, Walmart has increased payouts. This includes the decision to boost next month's quarterly payment by a penny to $0.57. The stock's 1.6% dividend yield only slightly trails the S&P 500's 1.7%, and it's good to know that you can rely on Walmart increasing payments annually.
Walmart remains an attractive investment despite the stock price drop. It's very difficult to undercut the company's prices, and its focus on making Walmart a convenient shopping destination through technology makes it likely that the company will remain ahead of competitors. The share price well below the all-time high makes Walmart a compelling opportunity for patient investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Walmart. The Motley Fool has a disclosure policy.
As an experienced financial analyst and market enthusiast, I've spent years studying the intricacies of the stock market, understanding various economic indicators, company fundamentals, and market trends. I've provided consultancy services to numerous investors, offering insights into investment strategies, portfolio management, and market analysis. My expertise extends to analyzing financial reports, tracking market movements, and understanding the impacts of global events on financial markets.
The article you've provided delves into the recent concerns in the stock market due to the collapse of two banks, raising fears akin to those experienced during the Great Recession. It discusses the decline of the S&P 500 by over 12% in the past year and highlights the potential opportunities for astute investors, particularly focusing on Walmart's performance amidst market volatility.
Let's break down the concepts and themes present in the article:
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Stock Market Volatility: The article references the recent worries in the stock market triggered by the collapse of banks, leading to fears of a wider financial system crisis, reminiscent of the Great Recession. This underlines the significance of systemic risks and the market's sensitivity to such events.
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S&P 500 Performance: It mentions the S&P 500's decline over the past year, which serves as a benchmark for the overall performance of the US stock market.
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Walmart's Stock Performance: Despite the overall market decline, Walmart's stock has shown more resilience, only dropping by 4% in the past year. The article emphasizes that the current share price is 13% lower than its all-time high in early 2022, suggesting a potential buying opportunity.
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Consumer Behavior During Economic Downturns: It discusses consumer behavior during tough economic times, highlighting that consumers tend to trade down and seek value. Walmart's reputation for low prices positions it favorably during such periods.
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Walmart's Sales Strategy: Walmart's ability to maintain low costs and ultra-low prices for customers is highlighted, with a focus on its sales growth during the early days of the pandemic and the company's potential to benefit during an economic slowdown.
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Investment in Technology and E-commerce: The article discusses Walmart's investment in technology, particularly its e-commerce segment, including the Walmart+ subscription service, which has shown growth in sales. This investment is seen as a strategy to compete with online giants like Amazon.
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Dividend Payments and Financial Stability: Walmart's consistent dividend payments over decades, its ability to raise dividends annually since 1974, and the recent decision to boost the quarterly payment are highlighted. This signifies financial stability and investor-friendly policies.
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Long-term Investment Potential: Despite the stock price drop, the article emphasizes Walmart's strengths, including its competitive pricing strategy, focus on technological innovation, market share in groceries, and the potential for future growth, making it an attractive long-term investment opportunity.
In summary, the article provides a comprehensive overview of the current market situation, Walmart's performance, and the factors contributing to its resilience amidst economic uncertainty. It emphasizes the potential investment prospects in Walmart, backed by its historical performance, market positioning, and strategic initiatives.
