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Boring Is Beautiful (WMT)
In a world of 600 point intraday lurches on the Dow, the last thing an investor needs is more heart-racing excitement. Sometimes, it's better to be boring. One of the most perennially boring names over the course of the post-2002 rally is the king of the big box, Wal-Mart (NYSE:WMT).
Wal-Mart is also something of a rarity in 2008 so far - a stock that has actually gone up.
If It Feels Like A Recession...
This past Monday, the world collectively decided that the U.S. was either in a recession or on the precipice of one. Markets reflected a recent stream of negative data.
December U.S. retail sales were down 0.4%, consumers have been in a funk with the Conference Board's Consumer Confidence Index at 88.6 in December and 87.8 in November, their lowest levels in over two years. The housing market shows no sign of bottoming, and the unemployment rate rose to 5% in December. (To learn more, read Recession: What Does It Mean To Investors and Understanding The Consumer Confidence Index.)
Whither thou U.S. consumer?
The talk is all about the U.S. consumer, so it's not surprising that consumer-related stocks have taken a hit. Bellwether retail stocks ranging from Fifth Avenue dowager Tiffany & Co. (NYSE:TIF) to online giant Amazon.com (Nasdaq:AMZN) to specialty format innovator Best Buy (NYSE:BBY) all took losses of 10% or more from the market open on January 2 to the close on January 22. It is therefore interesting that over this period, Wal-Mart turned in a 3.8% gain. This could be a sign of things to come. After all, people still have to buy things. The questions are: What they will buy? Where they will buy, and how they will make their spending decisions? (For added insight, check out Consumer Confidence: A Killer Statistic.)
Retail Not as Simple as it Used To Be
The old recession adage on Wall Street is to buy defensive stocks - companies who make or sell the things people buy no matter what. In a simpler time it was easy to separate the staples from the discretionary purchases. Procter & Gamble (NYSE:PG) made soap, everyone needed soap and so P&G was a good defensive stock. But the supply chain that connects a fast-moving consumer goods manufacturer like P&G to a retailer like Wal-Mart or CVS (NYSE:CVS) is much more complex than it used to be.
There is a much larger array of product choices (think soaps, bath gels, lotions, face bars, exfoliators and so on, with hundreds of scents and minerals and other properties thrown into the mix). Is a Body Shop bath lotion a "must have" staple or is Ivory soap an acceptable substitution when the household budget gets tight?
Back To (New) Basics
Over the past five years, the story in retail has been with the format innovators who brought the retail revolution to us. High-flying home retailer Williams-Sonoma (NYSE:WMS) clocked in with a cumulative 345% price appreciation over the five-year period ended January 22, 2008. Gap (NYSE:GPS) was a very stylish 470% over this period; Best Buy lived up to its name with a 169% rise, and online king Amazon.com delivered 238%. By comparison Wal-Mart's price performance over this period was a frumpy 4.8%. That's cumulative mind you, not an annual average.
The big box, however, is likely to be an increasingly popular draw as its everyday low prices increasingly figure into those troubled household budgets. Wal-Mart is the master of the SKU - the stock keeping unit that is the basic matter of the retail industry. Its key strength is the ability to offer a wide range of choices at the most competitive prices. Consumers don't have to go back to basic soap. They can simply find their favorite lavender jojoba butter lotion for a couple of dollars less at the big box. (For more on creating a solid defense, see Surviving Bear Country.)
Conclusions
I don't think it is an accident that Wal-Mart has bucked the negative trend in retail during the rough start to 2008. People still have to spend. When what matters most to consumers is that the same pair of socks costs $2 less in one store than another, the winner of that equation will be boring, dependable Wal-Mart.
Wal-Mart is also something of a rarity in 2008 so far - a stock that has actually gone up.
If It Feels Like A Recession...
This past Monday, the world collectively decided that the U.S. was either in a recession or on the precipice of one. Markets reflected a recent stream of negative data.
December U.S. retail sales were down 0.4%, consumers have been in a funk with the Conference Board's Consumer Confidence Index at 88.6 in December and 87.8 in November, their lowest levels in over two years. The housing market shows no sign of bottoming, and the unemployment rate rose to 5% in December. (To learn more, read Recession: What Does It Mean To Investors and Understanding The Consumer Confidence Index.)
Whither thou U.S. consumer?
The talk is all about the U.S. consumer, so it's not surprising that consumer-related stocks have taken a hit. Bellwether retail stocks ranging from Fifth Avenue dowager Tiffany & Co. (NYSE:TIF) to online giant Amazon.com (Nasdaq:AMZN) to specialty format innovator Best Buy (NYSE:BBY) all took losses of 10% or more from the market open on January 2 to the close on January 22. It is therefore interesting that over this period, Wal-Mart turned in a 3.8% gain. This could be a sign of things to come. After all, people still have to buy things. The questions are: What they will buy? Where they will buy, and how they will make their spending decisions? (For added insight, check out Consumer Confidence: A Killer Statistic.)
The old recession adage on Wall Street is to buy defensive stocks - companies who make or sell the things people buy no matter what. In a simpler time it was easy to separate the staples from the discretionary purchases. Procter & Gamble (NYSE:PG) made soap, everyone needed soap and so P&G was a good defensive stock. But the supply chain that connects a fast-moving consumer goods manufacturer like P&G to a retailer like Wal-Mart or CVS (NYSE:CVS) is much more complex than it used to be.
There is a much larger array of product choices (think soaps, bath gels, lotions, face bars, exfoliators and so on, with hundreds of scents and minerals and other properties thrown into the mix). Is a Body Shop bath lotion a "must have" staple or is Ivory soap an acceptable substitution when the household budget gets tight?
Back To (New) Basics
Over the past five years, the story in retail has been with the format innovators who brought the retail revolution to us. High-flying home retailer Williams-Sonoma (NYSE:WMS) clocked in with a cumulative 345% price appreciation over the five-year period ended January 22, 2008. Gap (NYSE:GPS) was a very stylish 470% over this period; Best Buy lived up to its name with a 169% rise, and online king Amazon.com delivered 238%. By comparison Wal-Mart's price performance over this period was a frumpy 4.8%. That's cumulative mind you, not an annual average.
The big box, however, is likely to be an increasingly popular draw as its everyday low prices increasingly figure into those troubled household budgets. Wal-Mart is the master of the SKU - the stock keeping unit that is the basic matter of the retail industry. Its key strength is the ability to offer a wide range of choices at the most competitive prices. Consumers don't have to go back to basic soap. They can simply find their favorite lavender jojoba butter lotion for a couple of dollars less at the big box. (For more on creating a solid defense, see Surviving Bear Country.)
Conclusions
I don't think it is an accident that Wal-Mart has bucked the negative trend in retail during the rough start to 2008. People still have to spend. When what matters most to consumers is that the same pair of socks costs $2 less in one store than another, the winner of that equation will be boring, dependable Wal-Mart.
by
Katrina Lamb
Katrina Lamb is an investment analyst based in Washington, DC, where she researches and advises on portfolio strategies employing a wide range of asset classes and means of investment exposure. Katrina has spent more than 15 years in the investment profession including a great deal time of living and working overseas in markets such as Japan, Southeast Asia, Central and Eastern Europe and the former Soviet Union. She is fluent in several languages including Russian and Japanese.
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