3 Reasons Walmart Stock Is a Portfolio-Killing Loser (WMT)

Walmart (WMT) is the largest brick-and-mortar retailer on the planet. Yep, we all know it’s successful … but WMT stock is a nightmare waiting to happen.

3 Reasons Walmart Stock Is a Portfolio-Killing Loser (WMT)Investors tend to agree, as WMT is down 25% so far this year — 18 percentage points worse than the S&P 500, which has lost more than 7% year-to-date.

Of course, just because Walmart shares have been beaten like a redheaded stepchild thus far in 2015, doesn’t mean WMT stock will keep underperforming.

That’s entirely true, but given the serious competitive, regulatory and brand issues it faces, I’m not counting on a reversion to the mean anytime soon. Here are three reasons you should keep Walmart stock far away from your portfolio:

Reason #1 — Intensifying Competition

Competition is not new for Walmart. Wall Street’s been worrying about Amazon (AMZN) for well over a decade now, and Target’s (TGT) retail rivalry has been well documented.

But this holiday season, Target is kicking it up a notch. In a move that will almost certainly pressure Walmart’s margins and perhaps further weigh on the WMT stock price, Target is dramatically expanding its price-matching guarantees, which now includes Walmart and Amazon’s online stores.

Walmart’s growing grocery segment is also taking new heat, as Kroger (KR) is rolling out an online grocery shopping initiative and Publix Super Markets (PUSH) coyly said it was mulling web-based grocery shopping as well.

And given the fact that the Walmart brand isn’t exactly squeaky clean and has fallen from the No. 1 global brand in 2009 to No. 10 in 2015, WMT will have to differentiate itself a little bit more meaningfully to win over the holiday shopper.

Reason #2 — Walmart’s Image and Trustworthiness Problems

Nearly five years ago to this day, on Sept. 30, 2010,WMT announced plans to boost its global workforce from 2.2 million to 3 million people. Exactly five years later, guess what Walmart’s headcount is? 2.2 million … still.

Instead of growing its workforce by 36%, creating 800,000 jobs in the process, the Bentonville, Arkansas-based retailer grew its workforce by 0%, creating zero jobs.

It’s not the type of detail that most consumers would remember, but given increasing outrage over income inequality in recent years and the cynical fatigue with which most Americans view politicians’ empty promises on the campaign trail, it’s disheartening — and frankly a bit angering — to see the same thing from Walmart, one of the leading companies in Corporate America.

While its true that WMT finally raised employee wages earlier this year, those raises don’t mean as much when you turn around and slash their hours.

Oh, and Walmart apparently still isn’t satisfied with the 0% growth in its workforce over five years, as the company prepares to layoff hundreds of workers at its corporate headquarters, according to a report from the Wall Street Journal Wednesday.

Reason #3 — Tax Haven Allegations/Regulatory Risk

It’s not just an uber-competitive industry and widespread image problems that make WMT stock a poor investment. A rarely mentioned regulatory risk sprung to life back in June, when Americans for Tax Fairness came out with a damning report accusing Walmart of having 78 subsidiaries and $76 billion in assets overseas (of which it failed to disclose) in countries that don’t even have Walmart stores. Not to mention WMT borrowed over $2 billion from those same subsidiaries in a way that circumvents the 35% repatriation taxes … which is more or less illegal.

The allegations are just allegations at this point, but if the SEC and/or IRS decide to investigate and find legal wrongdoing, you can bet your bottom dollar WMT stock won’t respond kindly to the ruling.

Walmart stock might seem like a nice little conservative investment on the face of it. But even conservative investments are supposed to have acceptable risk-return ratios, and WMT stock utterly fails in that category.

Walmart wants to be known for its low prices. With the stock down 24% this year, it’s getting its wish.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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