Why Walmart is one of the 'boring companies' worth investing in - Yahoo Finance

What makes a company "boring" yet completely safe to invest in? Threadneedle Strategies Founder Ann Berry sits down with Yahoo Finance Live to discuss safe core trades, such as Walmart, and how these companies are driving their margins.

Video Transcript

- With the possibility of future rate hikes and the looming threat of a possible recession, some are making the case for a less flashy, more consistent investment. Dare we even say boring. With more is Ann Berry, Threadneedle Strategies founder, who argues that boring is where it's at. All right.

So talk to us about some of your bor-- I like one of them. I know what's coming. But take us through what you see as potentially boring.

ANN BERRY: I think let's define boring. So let's talk about what the dullness means. So I think large businesses at scale that have been around for a really long time. We know they're not going to disappear overnight, where they generate a lot of cash flow. Some people would call glamorous.

But they aren't necessarily the big juggernaut, the big growth stories, the big AI stories. They're just there. They're not going away. There's probably pretty stable pricing. And often, I like to think they've got dividends being yielded as well.

- We like that. Why boring, though, right now in particular?

ANN BERRY: I think, Julia, that we're at this really tricky moment in the markets, where if you look at the S&P, if you look at the NASDAQ on a PE basis, it's very expensive relative to historical. There's almost no presence of an equity risk premium. I don't like that.

The other thing is too, there is such an important moment we're in an inflection point around technology, around AI. I do think we're in bubble territory because people are putting money to work without clear definitions and clear monetization paths. These are the moments where I want to hunker down in the boring, Diane. But I want to keep some money available to go into some of the more glamorous stuff too.

- All right. Well, let's talk about the boring picks that you like. So Walmart is one of them. I like that one. Tell us why Walmart and name a couple other ones.

ANN BERRY: Yeah. So Walmart to me is boring in the sense, again, it's groceries, right? It's a low-margin business, but it's the lead player.

It's not going away. Everyday low prices, and particularly if there's a recessionary environment coming, we all going-- do you remember EDLP is going to come back in fashion. And we've seen this migration towards even higher income demographics. They're all looking for value. So that's where, I think, Walmart is important.

However, it's got a cash dividend, which I like to have to reinvest back. And a little bit around the edges, it's boring with a little bit of sizzle coming around the edge. That company is collecting a ton of data.

Over 100 million Americans touch Walmart in some way. The stores, the e-commerce platform. They are collecting that data. They're using it to sell sophisticated ad services. And they're using it for product development. So that's where it's boring, but perhaps it evolves into something more glamorous.

- And you say it throws off a dividend. It's not a very big dividend.

ANN BERRY: It's not.

- What's it, like what, 1 and 1/2 percent or so? So obviously, you're prioritizing some dividend, but not necessarily a big dividend, right, when you're looking at these various companies?

ANN BERRY: Exactly.

- Let's see, Ford and GM.

ANN BERRY: Yeah.

- You're also looking at those boring, especially, I guess, compared with Tesla.

ANN BERRY: Yeah. We should definitely talk about Tesla. So Ford GM, I have put my money in. And I have stayed out of Tesla, which is a move I will probably regret, particularly seeing what's going on with the charging network today.

Ford and GM, it's a similar thesis. It's got a core business, which is not EV. It is that business is throwing off cash. And that cash is being reinvested into the sizzle, which is EV. Just like Walmart taking that core cash, putting it into sort of data and e-commerce. So that's my auto thesis.

- That makes sense. We're going to come back to Tesla.

ANN BERRY: Yeah, Tesla.

- We will.

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