The Wesfarmers Ltd (ASX: WES) share price has been up and down in 2020. Shares in the Aussie conglomerate are down 2.46% this year whilst still outperforming the S&P/ASX 200 Index (ASX: XJO) but this doesn’t tell the whole story.
The group’s shares hit a new 52-week high of $47.42 per share in mid-February. That was just prior to the bear market which sent the Wesfarmers share price tumbling to a 52-week low of $29.75 on 23 March.
So, despite the volatility, is the Wesfarmers share price set to climb in 2020?
Is the Wesfarmers share price headed higher this year?
I think Wesfarmers is actually in a strong position right now. The Aussie conglomerate is sitting on a pile of cash after having sold another part of its stake in Coles Group Ltd (ASX: COL) for $1.1 billion at the end of March.
Wesfarmers is diversified across a number of sectors which is good for stability. However, one of those happens to be the Aussie retail sector which is struggling right now.
Even before the coronavirus pandemic, retailers were doing it tough. Late this month Wesfarmers made the call to restructure its Kmart Group arm. This includes the closure of up to 75 Target stores across Australia as well as the rebranding of further Target stores to Kmart.
It’s true that cash is king right now. Ordinarily, having excess cash could be bad for the Wesfarmers share price. This is because the cash is not being put towards earning a strong return. However, the current economic environment is quite uncertain.
This means that strong cash positions have a couple of advantages. One is balance sheet strength and the ability to operate confidently. The other is being primed to acquire more companies and expand operations in 2020.
Many companies are trading cheaply now because of lost earnings and lower growth forecasts. This means Wesfarmers could swoop in and buy undervalued shares to diversify and broaden its portfolio.
Foolish takeaway
I think the Wesfarmers share price could climb higher in 2020. The Aussie conglomerate is looking to restructure and improve its efficiency right now.
Combined with a strong cash position and undervalued companies in the market, Wesfarmers definitely has the potential to climb in value over the next 7 months.
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More reading
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- Why I think the CSL share price is a strong buy today
- 5 things to watch on the ASX 200 on Friday
- ASX 200 rises again, ASX banks push higher
- Are ASX bank shares finally back in the buy zone?
Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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