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3 Stocks That Put Wal-Mart's Returns to Shame

In many respects, Wal-Mart (NYSE: WMT) has helped redefine its industry. When Walmart went public some 47 years ago, its "megastores" were a unique concept. Today, the Costcos of the world can look to Wal-Mart as the foundation for their success.

Though Walmart's stock returns are nothing to scoff at -- its up 98% during the past 10 years -- there are alternatives in today's world that have not only put its returns to shame, but likely will for years to come. Three that come to mind are social-media king Facebook (NASDAQ: FB), home-improvement mainstay Home Depot (NYSE: HD), and aluminum-manufacturer Alcoa (NYSE: AA).

Image source: Getty Images.

It's a brave, new world

Tim Brugger: (Facebook) It's almost unfair to have social-media behemoth Facebook included on a list of stocks that put Wal-Mart's returns to shame. Wal-Mart is, and has been for 4 1/2 decades, a publicly traded industry stalwart that has nearly doubled in value the past 10 years on a slow, but steady, basis.

But it's a brave, new world of a globally connected citizenry led by instant communication, the gathering of previously unheard of amounts of data, and the utilization of all that information to drive targeted advertising. In these matters, there's not a company on the planet that compares to Facebook.

Since Facebook's initial public offering (IPO) over five years ago, its stock is up 350% and still growing. Last quarter's $9.32 billion in revenue was a 45% increase over 2016, and operating margin jumped 5 percentage points, to 47%. Facebook's $1.32 in per-share earnings was a mind-boggling 69% increase. And it gets better.

Of the estimated 3.6 billion "connected" people in the world today, 2 billion access Facebook every month. Over a third of the world's connected population -- 1.32 billion -- are daily active users (DAUs) of Facebook.

The icing on the cake for investors, and one reason why Facebook puts Wal-Mart's returns to shame, is that there are multiple revenue opportunities that Facebook has yet to tap into. The billion-plus users of WhatsApp, Messenger, as well as the company's fledgling virtual reality (VR) efforts, offer outstanding monetization opportunities to help drive continued growth for years to come.

Another retail giant

Jeremy Bowman (Home Depot): Wal-Mart is the world's biggest retailer and the most valuable brick-and-mortar chain in the world. The Bentonville behemoth has also put up incredible returns: Since its debut in 1970, the stock has returned more than 120,000%. But one retailer has consistently outperformed throughout modern history, and that's Home Depot.

Since the No. 1 home-improvement retailer in the U.S. debuted on the public markets in 1982, its stock has jumped a whopping 641,000%, crushing Walmart and virtually every other stock during that time.

Data source: YCharts.

As the chart above shows, Home Depot has thrived during almost every part of its history with the exception of the Bob Nardelli era (December 2000 to January 2007). However, during almost any time horizon over the last decade, Home Depot has outperformed its larger big-box peer, though Wal-Mart is slightly ahead on a year-to-date basis after its recent surge. 

Despite Wal-Mart's successful efforts to respond to Amazon over the last couple of years, the home-improvement retailer seems better positioned for future growth. The home-improvement sector has been little challenged by the e-commerce channel, and Home Depot has wisely resisted opening new stores in a retail environment with store saturation.

As long as the housing market remains strong, Home Depot should continue to put up steady comparable sales and earnings growth, which have been fueled by using the cash that would have been spent on new stores on share buybacks instead. In its most recent report, the company showed off 6.3% comp sales growth and earnings per share (EPS) increased 14.2%. It also raised its guidance for the second quarter in a row.

That's a recipe for success that could propel the company to a greater market value than Walmart in a few years if its recent growth continues.

This smokestack-industry stock is worth a second look

Rich Smith: (Alcoa): Wal-Mart's returns have been good this past year, no doubt -- up 27% over the past 12 months. But do you know which company has been doing even better than Wal-Mart? Alcoa!

Believe it or not, this smokestack-economy company, which smelts aluminum for a living, has seen it stock price soar an incredible 136% over the past 12 months. How did Alcoa manage that? By buckling down and focusing on the basics.

Over each of the first three quarters of this year, Alcoa grew its sales consistently -- and by an average of 25% per quarter, year over year. Alcoa also buckled down on cost containment. Although gross profit margins -- the revenues Alcoa got for selling aluminum minus the cost of the raw materials needed to make it -- have been broadly stronger this year than last, gross margins in Q2 and Q3 were both significantly below Q1 levels. But by cutting costs, Alcoa was able to maintain levels of operating profitability above 11%, on average -- more than twice the profit margins that it reported in Q1 through Q3 in 2016.

Result: After years of losing money, Alcoa today is a firmly profitable enterprise again and churning out positive free cash flow more than twice as fast as it reports net income -- more than $600 million in positive cash profits recorded over the past year. At 15 times free cash flow and with a projected growth rate in the high double digits, Alcoa stock is finally worth considering for investment.

10 stocks we like better than Home Depot
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Facebook. The Motley Fool has the following options: long January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Costco Wholesale and Home Depot. The Motley Fool has a disclosure policy.