Walmart (NASDAQ: WMT) has long been a go-to stock for investors seeking safety during market downturns. Over the past three years, it has outperformed both the Nasdaq Composite and the S&P 500, with an annualized return of about 32%. This trend aligns with its historical performance, where Walmart stock held up better than broader indices during past bear markets, such as in 2008 and 2022.
The current tech sell-off has seen the Nasdaq Composite drop about 4% since its October 6 high, while Walmart has surged 9% in October, boosting its year-to-date return to 13%. This rally has been driven by Walmart's ability to attract both budget-conscious and higher-income shoppers, thanks to its investments in stores, inventory, and online shopping.
However, Walmart's strong performance has led to a high valuation. It is currently trading at around 43 times earnings, well above its 10-year average of 32. While its forward P/E is 36, analysts argue that its earnings growth estimates of 9% for fiscal 2027 and 11% for fiscal 2028 are not enough to justify the high valuation. This raises questions about whether Walmart remains the safest defensive stock to own if the market downturn worsens.
Despite its defensive qualities, some analysts suggest that Walmart may not be the best choice right now due to its overvaluation. The Motley Fool Stock Advisor team, for instance, did not include Walmart in their list of top 10 stocks to buy now, highlighting other potential opportunities with higher growth prospects.