Wesfarmers vs Coles: Which ASX share is the best buy?

When investors look for defensive ASX shares, Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL) are often mentioned in the same breath.

Both are household names. Both sell essential products. And both have proven they can perform through different economic conditions.

But if I had to choose between the two today, Wesfarmers would be my preferred buy. That does not mean Coles is a bad business. I just think Wesfarmers offers the more attractive overall package for long-term investors.

The case for Wesfarmers shares

Wesfarmers is not just a supermarket business, and that matters.

While Coles is almost entirely focused on food and liquor retailing, Wesfarmers owns a diversified portfolio of high-quality businesses. These include Bunnings, Kmart, Officeworks, Priceline, WesCEF, and a growing healthcare division.

That diversification gives Wesfarmers multiple earnings levers. When one division is under pressure, others can pick up the slack. Bunnings, in particular, remains a standout asset with strong brand loyalty, scale advantages, and pricing power that is hard to replicate. Masters famously tried and failed.

Another reason I prefer Wesfarmers is capital allocation. Management has a long track record of recycling capital, exiting businesses when returns disappoint, and reinvesting where long-term returns look attractive. That discipline is not always visible quarter to quarter, but it tends to show up over time in shareholder returns.

Wesfarmers is not cheap on headline valuation metrics. But in my view, that reflects the quality and resilience of the underlying businesses rather than excessive optimism.

Why Coles is still a good business

Coles deserves credit for what it does well.

It operates in a highly defensive sector, with food retail demand holding up regardless of economic conditions. Over recent years, Coles has improved its operational execution, supply chain efficiency, and private label offering.

Its earnings profile is relatively predictable, and dividends have been an important part of the investment case for income-focused investors. For those seeking stability and exposure to essential spending, Coles remains a good option.

That said, Coles is more exposed to supermarket-specific pressures. These include competition, margin scrutiny, and regulatory oversight. There are fewer places to hide if conditions become more challenging.

Growth versus simplicity

For me, the difference between these two ASX shares comes down to optionality.

Coles offers simplicity and defensiveness. Wesfarmers offers defensiveness plus growth opportunities across multiple divisions. Over a long investment horizon, I prefer the business that has more ways to grow earnings and redeploy capital.

That does not mean Wesfarmers will outperform every year. There will be periods where Coles does better, particularly if supermarket margins expand or consumer conditions stabilise quickly.

But looking beyond the next twelve months, I think Wesfarmers is better positioned to compound value.

Foolish takeaway

If forced to choose between the two, Wesfarmers would be my pick as the better buy today.

Coles Group remains a solid, defensive business, and I would not discourage investors from owning it. I just think Wesfarmers’ diversification, asset quality, and capital discipline give it a stronger long-term edge.

Sometimes the best investment is not about avoiding risk entirely, but about choosing the business with more paths to success.

The post Wesfarmers vs Coles: Which ASX share is the best buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.