Why Wesfarmers shares could be a dirt-cheap buy right now

The Wesfarmers Ltd (ASX: WES) share price has been going upwards in recent weeks. In the last month alone it has risen by around 7%.

However, there’s an argument to say that the business is still cheap.

For starters, the Wesfarmers share price still registers a decline of more than 20% this year amid strong inflation and higher interest rates.

A decline by itself doesn’t mean that the business is of good value. It’s possible for a company to fall and it’s (still) expensive.

Quality retail portfolio

The broker Morgans likes the business because of its “quality retail portfolio” and “highly regarded management team”, as reported by my colleague James Mickleboro.

Wesfarmers owns a number of different retail businesses including Bunnings, Kmart, Officeworks, Catch, Target and Priceline.

I think that Bunnings, Officeworks and Kmart are leaders in their respective sections of the retail world.

It’s worth paying up for the leader of an industry, in my opinion, assuming it has a promising future.

For what it’s worth, Morgans has a price target of $55.60 on the Wesfarmers share price, which implies a possible rise of more than 15%.

Director buying

I think it’s worth pointing out that a director has been buying shares of Wesfarmers recently, according to reporting by my colleague Sebastian Bowen.

When the leadership deem the shares to be worth buying on the market, that could be a useful buying signal.

Mike Roche reportedly bought another 1,500 shares at $44.94 per share.

Long-term potential of Wesfarmers shares

I like to invest in businesses that I could hold forever. It’s easier if you don’t have to worry about when to sell shares, and this strategy can also reduce/remove the impediments of brokerage and taxes on capital gains.

Wesfarmers is the type of business I could see myself holding forever. Not only does it currently own a quality portfolio, but it has the flexibility to adjust its portfolio of businesses over time. For example, it recently started a healthcare division after the acquisition of Priceline, Soul Pattinson Chemists and Clear Skincare Clinics.

I think the Wesfarmers share price is at a cheap enough level to buy and own for the long term.

According to Commsec, it’s valued at 22 times FY23’s estimated earnings. I think this is a good price for a great business.

The post Why Wesfarmers shares could be a dirt-cheap buy right now appeared first on The Motley Fool Australia.

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More reading

• 4 ‘fantastic long-term’ ASX shares to put on your watchlist: fund manager
• Morgans says these top ASX dividend shares are buys
• A director has been buying up Wesfarmers shares. Should you?
• 3 ASX 200 directors buying up their company shares in the past week
• Do Wesfarmers shares really offer 22% upside AND growing dividends?

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 Limited. 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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