Walmart (NYSE: WMT) is a stock that is designed to perform well in any economic climate, and that includes deep recessions. In fact, not only has Walmart easily surpassed the S&P 500 during the Great Recession of 2008, but the stock actually went up. In this fool live clip, recorded on December 6, Fool.com contributors Matt Frankel and Danny Vena explain why Walmart could be the ultimate recession-proof stock.
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Matt Frankel: So that brings us to our number one, which if you keep track you’ll know our number one is Walmart. It shouldn’t come as a surprise, this is a company that is designed to do well, no matter what the economy is doing. Walmart is for the bargain seekers. One of my favorite CEOs, Steven Tanger from Tangier points of sale (NYSE: SKT) who has just retired. Very good quote. “In good times people want to negotiate. In bad times people need a good deal.” It really applies to Walmart in this case.
Let me show you a graph very quickly. This is how Walmart, Danny’s alluded to the last recession a few times. Here’s this chart of Walmart’s 2008 stock price versus the S&P. It outperformed the S&P 500 by 57 percentage points in 2008. For this exact reason, they were actually one of the only components of the S&P 500, including tech stocks, to increase sales in 2008. Walmart is designed to do well, whatever the economy. do.
The only potential negative I know of is that it’s a low-margin business, you can’t sell things as cheap as Walmart and make a giant profit margin. They currently have a net profit margin of 1.8%. Not a big, high-margin company, but a huge sales volume. To put it in context, Walmart achieved $ 566 billion in sales in the past four quarters, about 70% more than Apple (NASDAQ: AAPL) do. Walmart is a very high volume business; they tend to gain customers during tough times. If there is even a perception that the economy is going to weaken, people are starting to look for good deals, and that’s a clear positive for Walmart.
They are excellent for returning capital to shareholders. Between redemptions and dividends, they return around 80% of their profits to shareholders. I don’t know, what can we say about Walmart? I see you pretty much agree with me on this, so it probably won’t be a long debate. But something to add to this?
Danny Vena: I am of the opinion that if you want recession resistant stock in your wallet, there is no better choice than Walmart. For exactly the reasons you spoke about, if you look back on their marketing campaigns over the past decade, will you remember the price drops that kept happening? It was, it’s so ingrained in the minds of consumers. Everyone knows that if you want to bargain, Walmart is where you go to get it.
When there is economic uncertainty the very first thing people do is start valuing their purchase and they want to save money. There is no better place to save money than at Walmart. My family, we are comfortable, middle class I would say. But when it comes to certain household items, when it comes to things you need to buy regularly like toilet paper, paper towels, shampoo and things like that, you can get a better price at Walmart. than anywhere else. I think that’s one of the reasons I ranked it # 1.
The other reason, I actually have a graph that was very similar to the one you showed, and I’m going to share this one now. I have a few more, but if you look at what Walmart did during the recession that started in November 2007 and ended in March 2009, Walmart shares were actually up while all other stocks in our list were down. Now you’ll notice, and I’ll point out where the S&P 500 is purple here, 55%. There were a number of stocks that held up better than the S&P 500. Walmart was the only one that actually won.
Danny Vena owns Apple. Matthew Frankel, CFPÂ® owns the Apple and Tangier factory centers and offers the following options: short calls at $ 140 in January 2022 on Apple and short calls at $ 140 in November 2021 on Apple. The Motley Fool owns and recommends Apple. The Motley Fool recommends Tanger Factory Outlet Centers and recommends the following options: March 2023 long calls at $ 120 on Apple and March 2023 short calls at $ 130 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.