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

Headlines about tariffs, inflation, and potential recessions can create anxiety for stock investors. However, it's essential to maintain a long-term perspective. This approach can be challenging, especially during periods of market volatility, but it's crucial to remember that predicting short-term market movements is nearly impossible. Long-term investments in solid businesses, despite temporary ups and downs, generally offer rewards for shareholders.

Walmart (WMT) has a long history as a successful retailer. Although it operates in a highly competitive industry, Walmart continues to hold its ground strongly. Here are a few key reasons why this company is a valuable addition to any investment portfolio.

1. A Well-Executed Simple Business Model

While many companies strive to control costs, Walmart has ingrained cost containment into its corporate culture. Since opening its first discount store in the early 1960s, Walmart has focused on keeping costs low to offer customers low prices.

As a result, it is challenging for competitors to undercut Walmart's pricing. The company successfully attracts over 250 million customers weekly through its stores and websites.

The numbers speak for themselves. Walmart recorded more than $680 billion in revenue in its recent fiscal year, with a 5.6% increase when accounting for foreign currency fluctuations. Additionally, its adjusted operating profit rose by 9.7% to $29.7 billion.

2. A Crowd-Puller

While past performance doesn't ensure future outcomes, Walmart is in a strong position for future expansion. Its ultra-low prices continuously attract shoppers, especially during tough economic times.

For instance, in the fourth quarter, same-store sales (comps) in Walmart's U.S. segment rose by 4.6%, notably driven by increased foot traffic. Walmart has also gained market share and started attracting higher-income customers.

Amid economic uncertainty fueled by tariffs, rising costs, and the threat of a recession, Walmart's affordability positions it well for customer and revenue growth. The company is unique in that it often benefits financially during challenging economic periods.

3. Forward-Looking Investments

Walmart's management is not complacent; they actively invest in technology and initiatives that maintain the company's competitive edge. The plan is to allocate 3% to 3.5% of sales to capital expenditures this year, resulting in a substantial overall investment as sales approach $700 billion.

The company continuously enhances the shopping experience, offering services like online ordering and in-store pickup, with many locations even providing same-day delivery.

Walmart is also diversifying its offerings, such as the launch of Walmart+, a subscription service that includes benefits like free shipping, streamlined checkout, and discounts on fuel.

With its vast customer base, Walmart collects extensive data, which it leverages for its advertising business. Although this currently makes up less than 1% of overall revenue, it experienced a 27% growth last year. This advertising segment is highly profitable, and over time, it could contribute significantly to Walmart's revenue.

Conclusion

Walmart's combination of low prices, convenience, and a management team dedicated to ongoing investment mount to make it an appealing long-term investment.

While the stock price indicates high investor expectations—with shares rising nearly 39% in the last year, outperforming the S&P 500 by approximately 20 percentage points—there are still considerations for investors. With a price-to-earnings (P/E) ratio of 35 compared to the S&P 500's 28, you might want to proceed cautiously.

If the valuation concerns you, consider gradually investing over time. This approach, known as dollar-cost averaging, helps mitigate risks by spreading out your investments and committing a fixed dollar amount at regular intervals.

Walmart, Investing, LongTerm