Wal-Mart Stores, Inc. (WMT) Is the Ideal Stock for the Next Recession

Investing in high quality businesses when they are at their maximum historical dividend yield tends to produce fantastic long-term results.

Wal-Mart’s price has declined 11.1% in the last week. Some of this decline is due to the market panic we have seen in recent days. Still more of the decline is due to Wal-Mart’s weak earnings results which the company recently released.

Wal-Mart’s reduced its guidance for its full fiscal year from a range of $4.70 – $5.05 to a range of $4.40 – $4.70. The decline is due to:

• Higher than expected employee compensation (due to wage increases)
• Higher than expected ‘shrink’ (basically, inventory theft)
• Lower than expected pharmacy reimbursements

Despite the negatives, Wal-Mart has turned the corner in the United States – the company delivered 4.8% sales growth in the United States in its most recent quarter.

Comparable store sales grew 1.5% overall. Neighborhood market comparable store sales grew over 7%. Positive comparable store sales growth shows that more people are choosing to spend money at Wal-Mart.

The recent guidance reduction gives investors an excellent entry point into Wal-Mart. Wal-Mart is uniquely situated to perform well if we enter into a global recession.

Great Recession Performance

Wal-Mart performed exceptionally well during the Great Recession of 2007 to 2009. The company’s earnings-per-share each year through this difficult time are shown below:

• 2007 earnings-per-share of $3.16
• 2008 earnings-per-share of $3.42
• 2009 earnings-per-share of $3.66

For comparison, take a look at the earnings-per-share of the S&P 500 over the same time period:

• 2007 earnings-per-share of $75.20
• 2008 earnings-per-share of $16.89 (ouch!)
• 2009 earnings-per-share of $56.33

As you can see, Wal-Mart rolled through the Great Recession as if it didn’t’ even happen. The average business in the S&P 500 suffered significant earnings declines.

The reason Wal-Mart Stores, Inc. (NYSE:WMT) did so well during the Great Recession is its reputation for low prices. When hard times set in, consumers stretch their dollars farther. Wal-Mart has a reputation for selling merchandise at ‘every day low prices’.