Please ensure Javascript is enabled for purposes of website accessibility

Here's My Top Robinhood Stock to Buy Right Now

By Will Ebiefung – Aug 31, 2020 at 10:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Walmart combines value with unparalleled growth potential in e-commerce.

The stock market has recovered its losses from the coronavirus pandemic, led by FAANG stocks like Amazon that barely missed a beat during the crisis. But with these companies trading at such high valuations, investors seeking more value-oriented stocks might feel left out. But anyone seeking gains at a lower price can start by checking out Walmart (WMT -0.10%).

Walmart is a popular stock on Robinhood, an investment app that's caught on with millennials because of its low fees and user-friendly platform. The company publishes a list of its 100 most widely held stocks, which can be a good resource for investors looking for their next big idea. Walmart is my top choice from this group because of its modest valuation, competitive advantage, and compelling long-term growth drivers. The company is poised to outcompete e-commerce rivals because its extensive logistics network gives it an advantage in last-mile delivery.

Let's dig in.

Dollars in a bag

Image source: Getty Images.

Why Walmart?

Value stocks are companies that trade at low multiples compared to their earnings and growth potential. Walmart fits comfortably into this category. With a market cap of $385 billion on Monday morning, the massive retailer trades at just 71% of revenue ($542 billion) and has a price-to-earnings (P/E) multiple of 22, compared to the S&P 500's average of 30. 

For comparison, high-flying e-commerce rival Amazon boasts a P/E of 134. 

Walmart's low multiples can be partially explained by the slow growth of the mature supermarket industry, which only expanded at a compound annual growth rate (CAGR) of 1.2% from 2015 to 2020. But that valuation doesn't seem to appreciate Walmart's convincing push into the significantly faster-growing market for online retail, which will power the company's next leg of growth. 

Transitioning into higher-growth business model 

Walmart reported earnings for its fiscal second quarter on Aug. 18, and the results demonstrate the blue-chip retailer's transition into higher-growth lines of business. Total revenue spiked 5.6% to $137.7 billion, due to a 9.5% increase in comparable sales in the U.S. and spectacular growth in the e-commerce business, which soared 97% at Walmart and 39% at Sam's Club. 

The company is poised for continued e-commerce expansion because of its massive physical infrastructure and the roll-out of Walmart Plus, an exciting new platform that could take market share from Amazon Prime. 

Walmart has a significant advantage over Amazon in last-mile delivery, a term that refers to the movement of products from a transport hub to their final destination. Walmart's network of 6,100 pickup and delivery locations in the U.S. allows it to offer next-day delivery to over 75% of the entire American population -- and the company is also expanding its same-day delivery option, which allows customers to receive products within three hours of placing an order. 

Walmart's upcoming subscription service, Walmart Plus, is expected to leverage these advantages into a $98-per-year package that will undercut Amazon Prime's $119 price tag by $21. 

You haven't missed the boat

The market is not ignoring Walmart's impressive pivot to e-commerce. The stock has already jumped 15% year to date compared to a 9% gain in the S&P 500, and the company looks poised for continued long-term growth because of its low valuation and compelling long-term growth drivers. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Walmart Stock Quote
$153.22 (-0.10%) $0.15 Stock Quote
$94.13 (-1.44%) $-1.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.