Walmart (WMT): 2019 Top Picks' Mid-Year Update

07/08/2019 5:00 am EST

Focus: CONSUMER

Joe Laszewski, CFA,CPA

Senior Portfolio Manager, Stack Financial Management

Joe Laszewski, senior portfolio money manager at Stack Financial Management, selected Walmart (WMT) as his favorite investment idea for 2019. The stock has since risen 19%. Here's his latest update on the retail giant.

The world’s largest retail and wholesale business, Walmart is best-known for being a low-cost provider of consumer goods. Historically, investors would focus on the defensive characteristics of WMT due to its strong balance sheet and membership in the Consumer Staples sector. 

However, due to a shift in overall strategy, we recommended this high-quality name for growth-focused investors coming into 2019. Walmart has produced solid returns throughout the first half of the year and, in our opinion, continues to offer an attractive combination of both growth and stability. 

Walmart has built a global ecosystem in order to grow their business and provide solutions to all types of consumers.  Having a massive footprint of over 11,000 total retail units, WMT has the size and logistical expertise to compete against a broad array of peers.

The original investment thesis was based on the company’s ability to execute growth initiatives tied to three distinct segments: grocery in-store pickup & delivery, international expansion, and ecommerce.   

Walmart has been winning at grocery by leveraging their scale and logistical expertise to offer new innovations like online ordering, in-store pickup, and in-home delivery. 

Additionally, the company’s firm foundation in grocery helps to drive foot traffic into stores, where customers ultimately purchase higher-margin items. WMT’s focus on grocery has helped them not only steal market share from traditional supermarket chains, but it also helps to insulate them from challenges facing many retailers that are losing revenue to online competition. 

Walmart International has a global footprint of over 6,000 retail units and has seen consistently improving comparable sales over the last few years. This trend continued in the first half of 2019 as highlighted by strong same store sales growth in Walmex (Walmart’s Mexico segment), China, and Canada.

Despite some uncertain political and economic environments, Walmart’s store portfolio keeps them close to consumers and well positioned for the future. Key acquisitions from an e-commerce standpoint have helped to bolster WMT’s digital profile, yet online sales still account for just 6% of total revenue.

Online sales growth has maintained a strong trajectory in 2019, and we anticipate this will continue going forward as WMT allocates additional capital to supply chain management and technology. 

Walmart’s thoughtful growth initiatives have been rewarded by investors through the first half of 2019.  With a continued focus on remaining a low-cost leader, while also improving the shopping experience, WMT carries wide appeal to consumers and investors alike.

Although Walmart is unlikely to quickly dethrone Amazon (AMZN), the retailer is finding ways to leverage what they do best and take market share. (Disclosure: Clients and individuals associated with Stack Financial Management hold positions in, and may from time to time make purchases or sales of, this security.)

Learn more about Stack Financial Management here…

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