3 Reasons Walmart Is a Must-Buy for Long-Term Investors

In today's climate, many investors may feel uneasy about the stock market. News around tariffs, persistent inflation, and fears of a recession can make anyone think twice about investing. However, it's essential to maintain a long-term perspective.

Despite short-term challenges, strong businesses often reward shareholders over time. One company that stands out as a solid investment is Walmart (WMT).

1. A Strong and Simple Business Model

Walmart is well-known for its approach to keeping costs low, a principle that has been part of its culture since it launched its first discount store in the early 1960s. This commitment allows Walmart to offer low prices, making it difficult for competitors to match.

Every week, more than 250 million customers visit Walmart stores and websites. The financial numbers support this success; last year, Walmart generated over $680 billion in revenue, which represents a 5.6% increase when adjusted for foreign currency translation. Its adjusted operating profit also rose by 9.7% to $29.7 billion.

2. Increased Customer Footfall

While past performance is not always indicative of future results, Walmart appears to be positioned well for sustained growth. The low prices it offers continually attract crowds, particularly during challenging economic times like the current inflationary environment.

In the fourth quarter, same-store sales in the U.S. rose by 4.6%, driven by increased traffic, accounting for 2.8 percentage points of that growth. Walmart has successfully gained market share, including attracting higher-income customers.

In times of economic uncertainty stemming from tariffs and a potential recession, Walmart’s affordability places it in a favorable position to grow its customer base and increase revenue. This makes it one of the few companies that can see financial benefits during tough times.

3. Forward-Thinking Investments

Walmart's management team is proactive, continuously exploring new technology investments to strengthen its competitive position. This year, the company plans to allocate approximately 3% to 3.5% of its sales towards capital expenditures.

These investments aim to enhance the customer experience, facilitating online ordering and in-store pickup, with many locations offering same-day delivery.

Additionally, Walmart has ventured into other services, like Walmart+, a subscription option that provides advantages such as free shipping, a streamlined checkout process, and discounted fuel.

With a massive customer base, Walmart is also leveraging its data in the advertising sector. Although currently this area comprises less than 1% of its total revenue, it grew by an impressive 27% last year. As Walmart invests in this area, it could become a significant revenue source in the future.

Bringing It All Together

When you consider Walmart's low prices, convenience, and a management team focused on strategic investments, it emerges as an appealing option for long-term investors.

The stock has performed well, rising nearly 39% over the past year, significantly outperforming the S&P 500 index. Currently, Walmart shares are valued at a price-to-earnings (P/E) ratio of 35, compared to the S&P 500's 28.

If this valuation raises concerns, consider a dollar-cost averaging strategy, allowing you to invest a consistent amount regularly while holding Walmart shares long-term.

Walmart, Investing, Stocks