3 Reasons Walmart Is a Great Investment for Long-Term Investors

If you have been following the financial news lately, you might feel anxious about investing in stocks. Headlines talk about various challenges such as tariffs, persistent inflation, and hints at a possible recession.

In such times, maintaining a long-term perspective is essential. The market can be volatile, making it hard to anticipate short-term price movements. However, investing in strong businesses tends to reward shareholders over time, regardless of temporary fluctuations.

Walmart (WMT) has established itself as a leading player in the retail sector. Despite the fierce competition, the company continues to maintain its strength. Here are three compelling reasons why adding Walmart to your investment portfolio could be wise.

1. Reliable Business Model

One of Walmart’s core competencies is its ability to manage costs effectively, which has been a key part of its culture since the inception of its first discount store in the early 1960s. The leadership has remained dedicated to keeping expenses low to pass those savings along to customers in the form of affordable prices.

This strategy has proven successful; it’s challenging for competitors to match Walmart's pricing. Because of its commitment to low prices, the retailer attracts over 250 million shoppers weekly across its stores and online platforms.

The results speak for themselves. Recently, Walmart reported more than $680 billion in revenue for its latest fiscal year, marking a 5.6% increase after accounting for foreign currency fluctuations. Its adjusted operating profit rose by 9.7%, reaching $29.7 billion.

2. Attractiveness in Tough Times

While past performance isn’t necessarily a guarantee of future success, Walmart is positioned well for continued growth. Its ultra-low prices draw in customers during challenging economic environments, which is especially true in today’s inflationary climate.

In its fourth quarter, same-store sales in the U.S. grew by 4.6%, with over half of this increase stemming from higher customer traffic. Walmart has been able to capture market share from competitors and draw in customers from higher-income demographics.

In uncertain economic times characterized by rising tariffs and inflation, Walmart stands out as a business that can thrive, helping it to gain both customers and revenue.

3. Commitment to Innovation

Walmart does not rest on its past achievements but continually invests in future growth. It plans to spend about 3% to 3.5% of its sales on capital expenditures this year, a substantial investment given its sales are nearing $700 billion.

The company has enhanced the consumer shopping experience significantly, introducing improved online ordering systems, in-store pickups, and many locations now even offer same-day delivery.

Walmart is also expanding its innovations through programs like Walmart+, a subscription service that offers benefits such as free shipping, a more efficient checkout process, and discounted fuel prices.

Furthermore, with a vast customer base, Walmart collects significant data, which it leverages in its growing advertising business. Although this sector currently contributes less than 1% of Walmart's total revenue, it increased by 27% last year and has the potential to become a major source of income in the future.

Conclusion

The combination of ultra-low prices, customer convenience, and a management team that prioritizes innovation makes Walmart a compelling option for long-term investors.

Bear in mind that the stock price reflects generally high expectations among investors; over the past year, Walmart's shares have risen nearly 39%, significantly outperforming the S&P 500 index by around 20 percentage points. Its current price-to-earnings ratio stands at 35, higher than the S&P 500’s ratio of 28.

Should this valuation concern you, consider using a dollar-cost averaging approach by regularly investing a fixed amount. This strategy helps smooth out your purchase prices over time, aligning with your goal of holding Walmart stock for the long term.

investing, stocks, long-term