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

In today's market, many investors may feel anxious as they read news about tariffs, persistent inflation, and the looming threat of a recession. However, it is essential to maintain a long-term perspective on investments. While it can be tough during times of market volatility, short-term fluctuations in stock prices are often unpredictable.

Investing in strong companies, even amidst temporary market challenges, typically leads to rewarding results for shareholders.

Walmart (www.walmart.com) has established itself as a leader in the retail sector. Despite the competitive nature of the industry, this company remains a powerful force. Here are three reasons why Walmart should be a key part of any long-term investment portfolio.

1. Effective Business Model

Walmart has a unique approach to managing costs that is a cornerstone of its operational strategy. Since it opened its first discount store in the early 1960s, maintaining low prices has been integral to its business culture. By keeping expenses minimal, Walmart can offer customers competitive prices that few rivals can match.

This strategy has resulted in impressive performance, with Walmart serving over 250 million shoppers each week, both in stores and online. In the last fiscal year, Walmart recorded revenues exceeding $680 billion, reflecting a growth of 5.6% when adjusted for foreign currency fluctuations. The company's adjusted operating profit rose by 9.7% to reach $29.7 billion.

2. Strong Customer Attraction

While past performance does not guarantee future success, Walmart is currently well-positioned for continued growth. The company's low prices consistently attract large crowds, particularly during economic downturns or times of high inflation.

For instance, in the fourth quarter, same-store sales in the U.S. segment increased by 4.6%, with much of that growth (2.8 percentage points) driven by increased customer traffic. Walmart has successfully gained market share, attracting a higher-income customer base.

In uncertain economic times marked by rising tariffs and potential recessions, Walmart's affordability allows it to increase its customer base and revenue. It is one of the rare businesses that actually benefits financially during tough economic periods.

3. Focus on Future Growth

Walmart's management is not complacent and has actively invested in technology to keep the company competitive. Walmart plans to allocate 3% to 3.5% of its sales toward capital expenditures this year, amounting to a substantial investment given sales approaching $700 billion.

The company has improved customer experiences through various initiatives, such as online ordering and in-store pickup options. Many of its locations also provide same-day delivery services.

Additionally, Walmart has launched Walmart+, a subscription service that offers benefits like free shipping and fuel discounts. With such a large customer base, Walmart is also leveraging data for its advertising business, which, although currently a small part of its revenue, grew by 27% last year and holds potential for significant future contributions.

Conclusion

Walmart's commitment to low prices, customer convenience, and future investments creates a compelling case for long-term investment. Although the stock price reflects high investor expectations, with a gain of nearly 39% over the past year (as of March 13), Walmart's shares still remain an attractive option.

The company now has a price-to-earnings (P/E) ratio of 35, compared to 28 for the S&P 500. If this valuation makes you hesitant, consider implementing a steady investing strategy. Dollar-cost averaging allows you to invest consistently over time, reducing the impact of price fluctuations.

Investing, Walmart, Stocks