Back in the early 1970s, the economy was mired in a recession and inflation was rising. Yet, if invested of the shares of the Wal-Mart (NYSE:WMT) IPO, you would have seen a mind-boggling gain of 122,731% since then. This is no fluke. Buying new offerings during tough times can be a good strategy. A more recent example is Visa (NYSE:V), which came public in March 2008 at $44. The shares now trade at $127.
Interestingly enough, both Wal-Mart and Visa are now at all-time highs. Yes, great companies have a tendency to find ways to evolve and grow.
So which company is better? Let’s take a look:
Yesterday was actually the company’s 50th anniversary. Founder Sam Walton saw a huge opportunity to use large stores and sophisticated logistics to create a transformative discount retailer.
Walton’s vision has become reality. As of now, Wal-Mart has nearly 9,000 stores and $447 billion in revenues. The company is the world’s largest employer, with a workforce of 2.1 million people.
It’s true that Wal-Mart has worthy competitors, like Target (NYSE:TGT), but they don’t have its massive scale. This is critical in providing dirt-cheap prices.
But Wal-Mart hasn’t only benefited from improved efficiencies. It has also seen gains in comparable-store sales as consumers continue to look for bargains. Over the past year, the stock is up about 32%.
With strong cash flows, Wal-Mart will likely continue to buyback its shares and perhaps even hike the dividend. The current yield is about 2.3%.
The company’s business would be incredibly expensive to replicate. Visa has long-standing relationships with thousands of financial intuitions across the globe. On their behalf, it provides mission-critical operations to make sure payments are securely processed. The business model is primarily based on fees for transaction volume.
The secular trend benefiting Visa is for payments to move away from cash. If anything, the surge in smartphones will be a critical growth driver. These devices will ultimately replace the traditional wallet.
OK, what about the slowing global economy? Granted, it will have a negative impact on Visa. But as long as the trend toward electronic payments continues, the company should be able to make up for the shortfalls.
Visa’s stock is a bit pricey, with a price-to-earnings ratio of 20. But in light of the company’s long-term potential, the valuation does seem reasonable.
Both Wal-Mart and Visa are world-class companies. They have strong brands and tremendous barriers to entry.
However, Wal-Mart may come under some pressure. With the U.S. economy slowing down, consumers may cut back on spending. They may also look for alternative retailers to shop at, such as the deep-discount players like Dollar Tree (NASDAQ:DLTR). At the same time, Wal-Mart also faces the long-term threat from e-commerce companies, such as Amazon (NASDAQ:AMZN).
So all in all, Visa is the better pick for now.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.