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Is Wal-Mart's Stock Recession Proof? (WMT)

Wal-Mart (WMT ) is one of the more unique stocks on Wall Street, not only because it is one of the largest chains in the world, but because of its behavior during certain market environments. It has often been said that WMT is a recession-proof stock (or a bear market stock) as its revenues and sales tend not to take a hit from any kind of economic turmoil. In fact, Wal-Mart’s discount products are sometimes more coveted when times are tough. Below, we took a look at WMT and whether or not the stock can really be called recession-proof.

WMT vs. The Market

Let’s start things off with the most basic comparison, WMT’s performance vs. that of the broad market, as represented by the S&P 500. The following chart puts WMT side-by-side with the S&P in every year that the latter has lost more than 5% since Wal-Mart went public in 1972:

In the 1973 and 1974 corrections WMT was a young company and an even younger publicly traded stock, making those two years especially tough. But once WMT got over that hump, the numbers began to speak for themselves. From then on, the only year in which the company did not outperform a bear market was in 2000, when it fell well behind the famed benchmark.

Aside from its stock price, the company’s revenues also help to showcase the fact that it stands up relatively well in the face of recession. This table shows the revenue growth year-over-year from just before the last recession until 2013.

Moving into the recession in 2007, Wal-Mart sported 10% and 9% growth for the next two years, with a respectable 7% growth in 2009. It is interesting to see the revenue growth slow once the recovery kicked into full gear, as customers could afford to spend more elsewhere and use a bit more of their disposable income on luxury items.

Bringing It All Together

Obviously there is a lot more to the equation than looking at revenue growth and stock performance, but the numbers are quite compelling. Being a discount retailer, Wal-Mart sells mostly inferior goods (economically speaking); that is to say that its products tend to see higher demand when consumers have less income and therefore less spending money. The latter two are often synonymous with a recession [see also 5 Stocks That Are Bellwethers for the U.S. Economy].

Wal-Mart falls into a rare category of a company that actually has the potential to underperform during a booming economy, but outperform in a poor one. Though this certainly cannot be an open-and-shut case (as evidenced by a year like 2000), it appears to be quite safe to rely on WMT to get you through a recession while minimizing losses.

From a dividend perspective there is a lot to like about WMT. Not only does it have a yield above 2.00%, slightly above market average, but it has increased its dividend payout for 39 straight years. Clearly, the company values its payout to shareholders and has increased through multiple recessions, proving that it is a dividend that can stand the test of time.

6 Charts to Put Wal-Mart in Perspective (WMT)

Besides being known as a “recession-proof” stock, Wal-Mart has become an investor favorite for a number of reasons. With thousands of locations across the globe, a recent stat suggested that approximately 90% of Americans live within 15 minutes of a Wal-Mart location. The company’s size, business model, and historical performance are just a handful of factors to consider.

Below, we present seven charts that help put this consumer juggernaut in perspective with its competition and the rest of the investing space.

Revenue per Store

To be exact, Wal-Mart currently operates 10,957 stores all around the world. This handsomely beats out two of its biggest competitors in Target (TGT ) and Costco (COST ), which have 1,924 and 649 locations, respectively. The following chart displays annual revenue per store. While Wal-Mart’s annual revenues of $476 billion are more than 4x that of both competitors, its large volume of stores lets Costco come away with a sizable win in this category:

Annual revenues for Target and Costco fall at $72.596 billion and $108.89 billion.

Number of Employees

The (often volatile) relationship that Wal-Mart has with its employees has been highly publicized over the years, partly because the company has 2.2 million employees (part and full-time). Compare that figure to two of its biggest competitors and a stark contrast is quickly formed [see also The Ten Commandments of Dividend Investing]:

As a fun fact on the side, the revenue per employee for WMT, TGT, and COST is $216,364, $201,097, and $587,937 respectively.

WMT’s Affordability vs. The Competition

This chart gives you a peer-to-peer comparison of current P/E ratios and which stocks are under and overvalued by the market. We have also included the SPDR S&P Retail ETF (XRT ) for comparison to the retail industry at large [see also Understanding Sky High P/E Multiples]:

WMT Historical Performance

WMT has been a publicly traded stock since August 25th 1972 and has come a long way since its IPO. This chart displays the monthly closing price (adjusted for splits and dividends) since the stock went public:

Earnings Management

Managing and meeting earnings expectations is a major point of concern for investors and analysts, as they want to see a firm that can accurately predict and hit their targets as time goes on:

Of the last eight quarters, Wal-Mart has either met or surpassed estimates on six occasions and missed on two others, marking a relatively strong earnings pattern.

Wal-Mart’s Size in Perspective

WMT has a market cap of approximately $280 billion, roughly the size of Chile’s GDP. Below, we put WMT’s market cap alongside the GDP of several other countries to give you a better idea of just how big the company truly is:

The Bottom Line

There is a lot to consider (good and bad) when looking at WMT in the retail space. Though it has had its struggles with legal issues and employee treatment, it is also one of the largest and most powerful retailers in the world, keeping it on the radar of investors day in and day out.

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