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

In today's financial landscape, stock investing can seem daunting. With headlines warning about tariffs, persistent inflation, and potential recessions, it's natural to feel apprehensive. However, adopting a long-term perspective is crucial.

While market volatility can be unsettling, short-term price movements are often unpredictable. Investing in strong companies, regardless of temporary fluctuations, usually offers lasting rewards for shareholders.

Walmart (WMT 2.56%) has established itself as a leading retailer over the years. Despite the competitive nature of the retail industry, Walmart's robust strategy makes it a compelling addition to any long-term investment portfolio.

1. Simple Business, Well Executed

Cost control is an essential aspect of Walmart's operations. Since its inception in the early 1960s, Walmart has maintained a firm commitment to keeping expenses low, enabling the company to offer lower prices to its customers.

This strategy has proven effective, allowing Walmart to serve over 250 million shoppers weekly through its stores and online platforms. The company's financial results reflect its successful approach, generating more than $680 billion in revenue for the last fiscal year, marking a 5.6% increase when adjusted for currency fluctuations. In addition, Walmart's adjusted operating profit rose by 9.7%, reaching $29.7 billion.

2. Attracting a Crowd

While past performance is no guarantee of future success, Walmart is strategically positioned for continued growth. Its attractive pricing consistently draws customers, particularly during challenging economic periods.

In the fourth quarter, Walmart reported a 4.6% increase in same-store sales within its core U.S. segment. Notably, over half of this growth—2.8 percentage points—came from increased foot traffic. Walmart is gaining market share and appealing to a higher-income customer demographic.

Amid economic uncertainty, including rising tariffs and the threat of recession, Walmart's affordability allows it to expand its customer base and increase revenue. Unlike many businesses, Walmart thrives during tough times, making it uniquely positioned for growth.

3. Investing for the Future

Walmart’s management team is dedicated to continual improvement. The company is investing in technology to enhance its competitive edge, aiming to allocate 3% to 3.5% of sales towards capital expenditures this year. With sales nearing $700 billion, this represents a significant commitment.

Walmart is focusing on improving customer experience by embracing online ordering and in-store pickup options. Many locations even offer same-day delivery services.

Additionally, Walmart has ventured into new areas such as Walmart+, a subscription service that provides benefits like free shipping, faster checkout, and discounted fuel.

Walmart's vast customer base allows it to collect valuable data, which it is using to develop its advertising business. Although currently accounting for less than 1% of total annual revenue, this segment experienced a 27% growth last year and has the potential to become a significant contributor in the future.

Putting It All Together

The combination of ultra-low prices, convenience, and a forward-thinking management team makes Walmart an appealing choice for long-term investments.

Of course, Walmart's stock price reflects high investor expectations, having appreciated nearly 39% in the past year up until March 13, well outpacing the S&P 500 index by 20 percentage points. Presently, Walmart shares trade at a price-to-earnings (P/E) ratio of 35, compared to 28 for the S&P 500.

If this valuation gives you pause, consider a steady investment approach such as dollar-cost averaging, where you invest a fixed dollar amount at regular intervals. This strategy can help smooth out your purchases over time, particularly if you plan to hold Walmart’s shares for the long haul.

Investment, Stocks, Walmart