Wal-Mart Stores (NYSE:WMT), the world’s largest retailer, is one of a growing number of Fortune 500 companies that’s found it pays to buy American.

The Bentonville, Ark. company, whose pursuit of low prices has been blamed for the decimation of the U.S. manufacturing base, now seems just as passionate about buying goods made in its home country. It has pledged to spend $50 billion more on buying American over the next decade. 

Though Reuters notes that the pledge isn’t particularly onerous for a company with annual sales topping $466 billion, it will certainly be a big deal for those companies that do business with Wal-Mart.  Oftentimes, the retailer becomes the sole customer for these small manufacturers.

“It reinforces our belief that we can revitalize American manufacturing and help rebuild the middle class with good-paying jobs that will allow employees to be a part of the American dream again,”  said Bill Simon, president and chief executive for Walmart USA, in a recent press release.

If this limited effort proves to be successful,  Wal-Mart will no doubt  expand it given the public relations value. Also, some consumers are growing increasingly leery about the country’s dependence on Chinese manufacturing.  According to a recent UN report, about 70% of  all counterfeit goods seized worldwide originate in China.

Wal-Mart’s interest in supporting American business may be tied to its plans to expand its grocery business, which has languished because the chain has had difficulty keeping fresh fruits and vegetables on its shelves. The company also is trying to buttress its reputation with shoppers. Wal-Mart finished at the bottom of retailers in the American Consumer Satisfaction Index, a distinction it has held for years. Wal-Mart’s score of 71 lags many smaller and struggling rivals such as  Sears (Nasdaq:SHLD),  which scored 75, and grocery chain Safeway (NYSE:SWY)  (75).  Best Buy (NYSE:BBY), which is in the midst of a turnaround, earned a 78 rating, while Target (NYSE:TGT),  Wal-Mart’s biggest rival,  received an 81.

If Wal-Mart can buy more American goods and maintain its competitive advantage that would be a huge plus in the eyes of Wall Street, which has been concerned for a while about Wal-Mart’s growth prospects. The company’s sales in the U.S. were below its own internal expectations during the most recent quarter.  In the 13 weeks ended July 30, same store sales, a key retail metric measuring performance of stores opened at least a year, fell 0.3% when gasoline is excluded.

The company is late to the “Buy America” cause. Reuters noted that many Wal-Mart suppliers had already decided to produce more goods in the U.S. That dovetails with a recent survey by the Boston Consulting Group which found that the majority of manufacturers with sales of more than $1 billion are either moving production back to the U.S. or are actively considering it. The reason why is simple:  Wages are rising in China, eroding the competitive advantage that the world’s most populous country has enjoyed over the rest of the world. People in China are also increasingly worried about corruption and inequality, according to the Pew Research Center.  The ruling Communist party would rather have higher wages than widespread social unrest.

Bottom Line

Wal-Mart may being doing the “right thing” for the American economy by increasing purchases of U.S.-made goods, but more importantly it’s doing the right thing for its shareholders over the long run.

With a price-to-earnings ratio topping 14, Wal-Mart shares are attractively valued.  Shares of the company have risen about 7% this year, underperforming Family Dollar (NYSE:FDO), which increased about 29%. Analysts have an average 52-week price target of $81.73, about 12% above where the stock recently traded. The time to buy Wal-Mart’s stock is now.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center