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1. Walmart
Walmart has established itself as a well-known retail giant with its widespread network of namesake stores and Sam’s Club locations, serving 255 million customers weekly. While its fundamental focus on maintaining low costs to offer competitive prices remains unchanged, the company has been actively investing in technology to enhance the customer experience, such as online ordering with in-store pickup and same-day delivery in many areas.
The core Walmart U.S. segment saw a significant 5.3% increase in same-store sales in the fiscal third quarter, with over half of the growth attributed to e-commerce. Adjusted operating income for the quarter increased by 6.2%, excluding currency effects, and management anticipates a minimum 8.5% profitability rise for the full year. Walmart has a long history of consistent dividend payments, earning it the title of a Dividend King.
Investors have taken notice of Walmart’s robust performance, with the stock surging over 71% in the past year, outperforming the S&P 500. Despite trading at a price-to-earnings (P/E) ratio of 37, higher than the S&P 500’s 30, the stock’s valuation appears justified given the company’s strong performance and future outlook.
2. Home Depot
Established in the late 1970s, Home Depot has grown into the largest home improvement retailer by revenue, boasting annual sales exceeding $150 billion. The company’s financial results are closely tied to economic conditions, as consumer confidence influences home purchases and construction projects.
Recent challenges for Home Depot have included economic factors like increased interest rates and higher living expenses, leading to a decline in same-store sales by 1.3% in the fiscal third quarter. Despite an anticipated 2.5% decline in comps for the year, positive developments, such as a rebound in existing home sales and rate cuts by the Federal Reserve, are expected to drive sales growth.
Home Depot has a track record of annual dividend increases since 2010, maintaining a safe payout ratio of 60% despite recent earnings declines. While the stock gained 12.7% over the past year, it trailed the S&P 500 performance. However, as economic conditions improve, Home Depot is well-positioned to benefit and potentially see increased sales and earnings.
Trading at a P/E of 26, Home Depot’s shares are priced at a discount compared to the S&P 500. Before investing $1,000 in Home Depot, investors should consider other potential investment opportunities identified by The Motley Fool Stock Advisor team for potentially higher returns.
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Lawrence Rothman, CFA, maintains a neutral stance with no holdings in the aforementioned stocks. The Motley Fool, a reputable financial services company, not only endorses but also has financial interests in Home Depot and Walmart. As part of its commitment to transparency and integrity, The Motley Fool abides by a strict disclosure policy that ensures full transparency for its stakeholders.
