Would This Retailer Actually Rise During a Stock Market Crash?

Walmart (WMT 0.03%) is a stock that is set up to do well in any economic climate, and that includes deep recessions. In fact, not only did Walmart handily outperform the S&P 500 during the Great Recession in 2008, but the stock actually increased. In this Fool Live clip, recorded on Dec. 6, Fool.com contributors Matt Frankel and Danny Vena discuss why Walmart might be the ultimate recession-proof stock. 

Matt Frankel: So, that brings us to our number one, which if you've be keeping track, you will know that our number one is Walmart. Shouldn't come as too much of a surprise, this is a business that's built to do well no matter what the economy is doing. Walmart is for bargain seekers. One of my favorite CEOs, Steven Tanger of Tanger Outlets (SKT 0.51%) who just recently retired. Great quote. "In good times, people want to bargain. In tough times, people need a bargain." That really applies to Walmart in this case.

Let me show you a chart real quick. This is how Walmart, Danny's alluded to the last recession a few times. Here's this chart of Walmart's stock price in 2008 compared to the S&P. It outperformed the S&P 500 by 57 percentage points in 2008. For this exact reason, they actually were one of the only S&P 500 components, including tech stocks, to grow their sales in 2008. Walmart is built to do well no matter what the economy is doing.

The only potential negative that I know of is that it's a low margin business, you can't sell things as cheaply as Walmart does and make a giant profit margin. They have a 1.8% net profit margin right now. Not a big high margin business, but tremendous sales volume. Just to put it in context, Walmart did $566 billion of sales in the past four quarters, that's roughly 70% more than Apple (AAPL -0.26%) did. Walmart is a very high-volume business; they tend to gain customers during tough times. If there's even a perception that the economy is going to weaken, people start to look for bargains, and that's a net positive for Walmart.

They're great at returning capital to shareholders. Between buybacks and dividends, they return something like 80% of their profits to shareholders. I don't know, what can we say about Walmart? I see that you guys pretty much agreed with me on this one, so this probably won't be a long debate. But anything to add to that?

Danny Vena: I am of the mind that if you want a recession-resistant stock in your portfolio, there is no better choice than Walmart. For exactly the reasons you talked about, if you go back over their marketing campaigns over the past decade, you'll remember the price rollbacks that kept coming on and on? That was the case, that is so ingrained in consumers' minds. Everybody knows that if you want to bargain, Walmart is where you go to get it.

When there's economic uncertainty, the very first thing people do is they start assessing their purchase and they want to save money. There is no better place to save money than at Walmart. My family, we're comfortable, middle class, I would say. But when it comes to certain household items, when it comes to stuff that you have to buy regularly, like toilet paper and paper towels and shampoo and things like that, you can get a better price at Walmart than anywhere. I think that that was one of the reasons why I ranked it at number one.

The other reason, I actually have a chart that was very similar to the one that you showed, and I'll will share this one now. I've got a couple of more, but if you look at what Walmart did during the recession that started in November 2007 and ended in March of 2009, Walmart stock was actually up when every other stock on our list was down. Now, you'll notice, and I'll point out where the S&P 500 is the purple one down here, 55%. There were a number of stocks that held up better than the S&P 500. Walmart was the only one that actually gained.