Wesfarmers Ltd (ASX: WES) shares have been rising over the last six months. Is this a solid, defensive S&P/ASX 200 Index (ASX: XJO) stock to own in the current environment?
There are a number of different businesses within the Wesfarmers stable including Bunnings, Officeworks, Kmart, Target and Priceline.
It may be said that each of these businesses could have varying levels of resilience during an economic downturn.
I think the recent past could be a useful guide. Iâm not talking about the COVID-19 period, Wesfarmers performed excellently during the pandemic.
The last difficult period
The coronavirus period was certainly tricky for many businesses, but the huge demand for DIY and construction materials, as well as technology and other products that Wesfarmers sold.
But, FY19 may be a good example of somewhat similar conditions where house prices had fallen and economic demand was lower.
In that result, Wesfarmersâ continuing operations earnings before interest and tax (EBIT) increased 12.2% and net profit after tax (NPAT) grew 13.5%. Bunnings managed to grow earnings.
But, as the saying goes, past performance is not a guarantee of future performance for the ASX 200 stock.
Are Wesfarmers shares defensive?
I think itâs important to say that no share price is impervious to volatility. Even if a companyâs profit isnât affected by a downturn, the market can still decide to push down a share price due to investor pessimism.
However, I believe that Wesfarmers is well-positioned to outperform in the current environment, making it a defensive ASX 200 stock.
In a time when household budgets may be stretched and particularly value-conscious, the price-focused businesses of Bunnings and Kmart could attract more customers than competitors.
Considering Priceline is a business that operates in the healthcare sector, it could also display good earnings.
The Wesfarmers chemicals, energy and fertiliser (WesCEF) segment seems to continue to perform thanks to the demand for commodities.
In my opinion, a good majority of Wesfarmersâ earnings could grow in FY23. Commsec estimates suggest that the company could generate earnings per share (EPS) of $2.14 in FY23 and $2.25 in FY24. This would put Wesfarmers shares at 24 times FY23âs estimated earnings and 23 times FY24âs estimated earnings.
Is the Wesfarmers share price a good buy?
I think Wesfarmers is usually a good business to consider because of its diversified operations and ability to invest in new businesses.
Itâs not as cheap as it was last year. But, I think it has the potential to deliver capital growth, as well as good dividends.
There may be a bit of pain if interest rate effects hit harder than expected. But, over the long term, I think Wesfarmers is one of the most interesting and compelling ASX 200 stocks out there. Iâd call it a buy.
The post Is Wesfarmers a good defensive ASX 200 stock to buy in the current climate? appeared first on The Motley Fool Australia.
Should you invest $1,000 in Wesfarmers Limited right now?
Before you consider Wesfarmers Limited, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Wesfarmers Limited wasn’t one of them.
The online investing service heâs run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
See The 5 Stocks
*Returns as of April 3 2023
(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}
setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()
More reading
- How much do you need to invest to give up work and live only off dividend income?
- How Iâd invest $5,000 today for long-term passive income
- How Iâm building more passive income to retire early
- Big Wednesday: 12 ASX 200 stocks cracking new 52-week highs
- Why did the Wesfarmers share price just smash a new 52-week high?
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
from The Motley Fool Australia https://ift.tt/FsuMYIw
Leave a Reply