Overall, May was an extraordinary month for ASX shares. The S&P/ASX 200 Index (ASX: XJO) managed to bank an increase of 4.2% for the month, helped in large part by the ASX banks like Commonwealth Bank of Australia (ASX: CBA).
But other some ASX shares weren’t really joining in the party.
Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are 2 examples.
The Coles share price started May at $15.51 per share but ended the month at $15.36, meaning the company actually went backwards by 0.97% over the month.
Meanwhile, Woolworths shares began the month at $35.75 per share and concluded May at $35.34, again, down 1.15%.
So why have Woolies’ and Coles’ share prices lagged so dramatically over May? And perhaps more importantly, does this mean there might be some buying opportunities right now?
Why Coles and Woolies have been lagging lately
It’s worth remembering that both the Woolworths and Coles share prices were holding up remarkably well during the market crash we saw in March. Between 20 February and 23 March, the ASX 200 lost more than 36% of its value. Over the same period, the Coles share price ‘only’ lost 3.53% and Woolworths was down 16.4%.
It’s this defensiveness that is leading Coles and Woolworths to lag the broader market’s recovery in my view.
If a stock isn’t volatile relative to the ASX 200 during bad times, it typically displays similar inertia during good times.
Are Woolworths or Coles shares a buy today?
It’s worth noting that I think Woolworths shares were getting a little overpriced prior to the March crash, which explains why they performed poorly compared to the Coles share price during the crash.
Thus, I would class both Coles and Woolworths shares as ‘fairly valued’ today, despite their recent market performance.
But ‘fairly valued’ is still a long way from being a ‘bargain buy’.
On current prices, Coles is trading on a price-to-earnings (P/E) ratio of 17.44 and Woolworths on 17.7. Given that the broader ASX 200 P/E is sitting at 18.98 on average, I’m not really too compelled to add these shares to my portfolio today.
But there might be some merit in these 2 ASX giants if you’re a dividend income investor. Unlike many other ASX blue chips, I think both Coles and Woolworths will easily be able to fund their dividend payments in 2020. The grocery business is very defensive and should hold up no matter what happens with the economy for the remainder of the year.
So long story short, I would class both Coles and Woolworths as reasonable ‘buys’ today for dividend income, but not for much else.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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.
The post Why Coles and Woolworths shares were flat in May appeared first on Motley Fool Australia.
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