Walmart (NASDAQ: WMT) and Costco (NASDAQ: COST) are facing challenges despite their reputation as recession-resistant stocks. As of now, both companies are trading at high valuations, with Walmart priced at 44.4 times trailing earnings and Costco at 54.6 times. Currently, their dividend yields are below 1%, standing at 0.8% for Walmart and 0.6% for Costco.
Both retailers are focusing on value by leveraging efficient supply chains and private labels like Walmart’s Great Value and Costco’s Kirkland Signature. However, the broader economy is under stress, with high gas prices and a sluggish housing market impacting consumer spending. In the last five years, Walmart and Costco stocks have nearly tripled, but analysts suggest that investors may find better opportunities outside these two companies given their inflated valuations.
The average operating margins for Walmart and Costco are low—4.2% and 3.8%, respectively—indicating a struggle to convert sales into profit. Analysts recommend considering alternatives, as several tech stocks are viewed as more favorable buys compared to these retailers.
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