If I Had to Own Only One Stock Going Into 2021, This Would Be It
“Why, when I was your age, inflation – and my mortgage — were running at double-digit rates.”
Unfortunately for me (but fortunate for my grown children, I suppose), I won’t be giving that diatribe at the family holiday gathering this year because, well, COVID-19.
I’ll save the speech until next December, by which time I’m guessing the “i” words – inflation and interest rates — will be more of a thing. The signs are already there, as contributor Dave Sterman points out, and there’s no better time to prepare for that eventuality than now…
— Bob Bogda, Editor
P.S. Like what you see? Don’t like what you see? Let me know.
I’ve been in this racket 25 years. If you’d told me 12 months ago that we would see a dicey Presidential election, a once-in-a-century-style global pandemic, a self-induced global economic slowdown due to the pandemic, a dramatic market decline and an equally dramatic recovery, and historic wildfires and hurricanes I would assume you lived in a legal weed state.
To paraphrase the fortune cookie: “We live in interesting times.”
So, with a COVID-19 vaccine making its way through the distribution chain and a mostly settled presidential election, what does the path to 2021 look like?
Chances are better than good that Fed policy will remain accommodative. The economy hasn’t fully “reopened” and jobless numbers are still not where Chairman Powell and company want them to be. Interest rates will stay low to non-existent.
What about consumers? They initially will remain cautious, at least until a meaningful relief package and the vaccines make their way through the system. After that, it may be party time. There’s a lot of pent-up demand and with stimulus money in their pocket, a lot of Americans will blow through that cash.
With that notion in mind, I gladly accepted the “If I Had to Buy Only One Stock” challenge from my editor. Now, you should always own more than one stock. However, this is a hypothetical gun-to-the-head situation.
If I’m picking one stock that covers all bases going into 2021, it would be retail leviathan Walmart (WMT). Feeling a bit underwhelmed by the choice? Don’t. Here’s why.
Walmart is actually a multi-sector stock
Yes. Officially, WMT falls under the retail sector and their retail business is gigantic. But when you pop the hood, the moving parts are mind boggling.
E-commerce/technology: With limited consumer mobility thanks to pandemic quarantines and lockdowns, Walmart’s e-commerce business mushroomed like a nuclear warhead. In August of this year, online sales broke through the $10 billion level and grew at a 79% rate during the company’s third fiscal quarter, contributing 5.7 percentage points to same-store sales.
In the bigger picture, according to emarketer.com, this helped propel Walmart to the number 2 spot of U.S. ecommerce companies in 2020 by market share. Obviously, Amazon is the big kahuna with a staggering 38.7% of U.S. ecommerce sales. Walmart is a distant second with just a 5.3% share. But, after all, that just means there is room to grow.
The company in September launched its response to Amazon Prime with Walmart Plus, a premium subscription service that offers unlimited delivery, discounts on gas and scan-and-go purchasing at any of its brick-and-mortar stores, among other features. It’s too soon to tell what the impact will be. But Walmart has the infrastructure and muscle to make it competitive.
As the retail landscape evolves in a post-pandemic world, Walmart will definitely grow that 5.7%.
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Healthcare: Yes. Healthcare. According to Statista, Walmart’s pharmacy is the fifth-largest retail prescription drug provider in the United States. Again, it’s a small number — just 4.7% of the market. Nevertheless, pharmacy sales make up 11% of Walmart’s $548 billion of annual revenue.
Beyond pharmacy sales, Walmart is also making bold moves in providing primary care. Just as CVS Corp (CVS) expands its in-store, primary care Minute Clinic footprint, Walmart is expanding its effort in the same space with plans of operating 22 in-store clinic facilities by the end of 2021. With a pilot location in Georgia, the company will expand to Florida, the Chicago area, as well as additional Georgia locations.
Housed in Walmart Supercenters, Walmart Health Clinics will provide urgent and primary care, counseling, dental, optometry and hearing services for patients without insurance. Prices will range from $40 for a primary care visit to $60 for new-patient intake and $25 for adult teeth cleanings. With 3,500 supercenters in the country, Walmart has the infrastructure and pricing power to become a major disruptive force in retail healthcare while filling a desperate societal need for primary care access for underserved communities and consumers.
Rock Solid Numbers
Walmart’s numbers are just irrefutable. Five-year average annual earnings per share growth of 10.28% (consider the size and the age of the business to be able to manage that). $10.8 billion in annual free cash flow. 25.8% return on equity. Again, for a business of Walmart’s girth and expense to be able to consistently turn in numbers like these in nothing short of miraculous.
The Covid-19 pandemic reminded us of the glaring weaknesses in our healthcare system and allowed innovators like Walmart to continue to change the game in the retail distribution space. And with government stimulus and improved consumer optimism heading this way, no one is more poised to profit than Walmart. Shares trade at $145.57 with a forward price earnings ratio of 26.06 and a 1.48% dividend yield.
Action to Take: WMT is currently about 5% off its 52-week high. Consider establishing a partial position at current prices and add to your holding on pullbacks.
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Dec 14th, 2020