Why You Should Dump Wal-Mart

Wal-Mart has made headlines for overworking and underpaying its employees, but is rival Target any better? Is anybody?

Jan 11, 2014 at 12:00PM

Wal-Mart (NYSE:WMT) got a lot of attention this holiday shopping season, but not in the way they were hoping. Even as they made headlines for opening on Thanksgiving Day, a photo of bins at a Wal-Mart store collecting canned goods from employees to be given to other impoverished employees called attention to the low (some would say, "starvation") wages Wal-Mart pays. 

Add to this some high-profile Twitter skirmishes and Internet memes implying that taxpayers are footing the bill for Wal-Mart's low wages, and the world's largest retailer looked less like Santa and more like Scrooge. 

In light of all this, should you dump your Wal-Mart shares? And what if you want exposure to the retail sector, but with a clear conscience?  Does any other company stack up?

Check emotion at the door
There's no shortage of businesses that make their money in ways that might turn an investor's stomach. Altria (formerly Philip Morris) is just one example. In some cases, these stocks underperform the market, but often they produce outstanding returns. Here's a sampling of companies you might find unsavory and their performance over the last year:

SWHC Chart

Data by YCharts.

It just goes to show that one's moral compass isn't the best tool in an investor's arsenal.  So should you avoid buying shares of a company you detest? 

Well, ultimately that's up to you, but I'm a big proponent of the theory that an investor should be proud to own the businesses he or she holds stock in.  And you really can't be proud of a business you find icky. 

Ideally, an investor keeps emotion out of picking stocks to avoid making emotional, as opposed to rational, decisions about trading. And if every time you look at a stock, a shiver runs up your spine, you're having an emotional reaction. Which means you may end up selling the stock too soon or ignoring a gut instinct to sell by misidentifying it as your usual aversion to the stock. Bottom line: if a company makes you sick, stay far away from its products and its stock. 

Who measures up
Okay, but what about Wal-Mart? There's no question it's an investment that's done pretty well over the past decade, especially during the recession--but as you can see, lately it's not only been underpaying its employees, but underperforming the market too:

WMT Chart

WMT data by YCharts

Is any other retailer any better? What about rival Target (NYSE:TGT)?  Same global reach, same strong brand identity, similar dividend (2.7% to Wal-Mart's 2.4%) and they pay their workers better...right?

Well, to be honest, no. Wal-Mart gets more attention in this regard only because of its size (its 1.4 million US employees dwarf Target's 361,000), but Target isn't much better in terms of income disparity between the top and the bottom. Target's CEO Gregg Steinhafel "only" makes 645 times the salary of its average worker, compared to 796 times the average worker's salary for Wal-Mart's CEO Michael Duke. 

Both companies pay most of their retail staff (Target calls them "Team Members," while Wal-Mart calls 'em "Associates") minimum wage.  And Target was likewise open on Thanksgiving Day. So what's an investor to do?

There is a third way
One retailer stands out as a model of pro-employee policy: Costco (NASDAQ:COST). In stark contrast to Target and Wal-Mart, Costco's CEO Craig Jelinek only makes about 48 times the pay of its average worker. And that worker makes a minimum of $11.50 an hour, thanks to Costco's commitment to paying livable wages to all of its employees. Costco has also publicly come out in favor of an increased federal minimum wage.

Costco isn't just employee-friendly, but shareholder-friendly too, having repurchased nearly $2 billion worth of shares since 2010, and offering a 1.1% dividend. It's also outperformed the overall market as well as Wal-Mart and Target over the past five years:

TGT Chart

Data by YCharts

The Foolish bottom line
Any time you look at a business you own stock in and you don't like what you see, whether for moral or financial reasons, you should consider selling. And if you decide to sell Wal-Mart, Costco makes an attractive alternate investment. To paraphrase a well-known slogan: "All of the taste, none of the guilt!"

Wal-Mart's going down, so who's taking over?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

John Bromels owns shares of BP p.l.c. (ADR), Costco Wholesale, and McDonald's. The Motley Fool recommends Costco Wholesale and McDonald's. The Motley Fool owns shares of Costco Wholesale and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers