Walmart (WMT -0.39%) is not only a massive retailer that generates hundreds of billions of dollars in revenue each year; it is actually positioned to do better when the economy takes a turn for the worse. But in this Fool Live video clip, recorded on Dec. 13, Fool.com contributor Matt Frankel discusses why Walmart might not be the right retail stock for many investors despite its safety.
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Matt Frankel: This is Walmart, ticker symbol W-M-T. We actually had a two-way tie for No. 7 [out of 10 "holiday shopping" stocks], so we'll call this also No. 7. We all ranked this toward the middle of the pack. What can we say about Walmart that everyone doesn't already know? Biggest retailer in the world, they did $566 billion of sales in the past four quarters. I think we talked about this on "The Rank." It was either last week or the week before when we were talking about stocks that would hold up well in volatility.
The reason being, and I'll share my screen because you guys both did and now I feel left out. Give me one second. Make sure I have the right thing up before I share a picture of my dog. This is Walmart during the 2008 stock market crash, you can see the S&P 500 generated a total return of negative 37% that year. Meanwhile, Walmart was one of the very, very few S&P stocks that was up. Walmart actually increased by 20% during 2008. Reason being is we mentioned discount retailers a second ago, Walmart actually has a lot of consumer power in good times and bad. Anyone who has gone to Walmart in the past three or four years could tell you it's busy no matter what.
But then when the economy takes a dive, people who normally shop at high-end retailers and want to cut back and scale back on their purchases. Because I can tell you firsthand as someone who shops half the time at Publix and half the time at Walmart, there's a big price difference. People who need to scale back would gravitate toward Walmart, and that's why you saw that 2008 lift. Low-margin business, 1.8% profit margin. Under 2% net profit margin. This isn't a big high-margin business.
You're not going to go wrong investing in Walmart, but you're also not going to make a ton of money. And I want to share my screen one more time before I let the other guys chime in. I showed that they outperformed during the tough times. But this is since 2000: You can see that they've underperformed the S&P by about 100 percentage points over that 20-year period. I honestly see the same over the next 20 years. Good performance, not going to lose you money.