The Woolworths Group Ltd (ASX: WOW) share price edged 0.8% lower yesterday, but is the Aussie retailer in the buy zone?

Why the Woolworths share price could be a secret buy

One thing that caught my interest yesterday was a trading update by SCA Property Group (ASX: SCP). 

SCA reported that sales performance for a number of its tenants had been volatile due to the coronavirus pandemic.

However, anchor tenants, such as supermarkets, have seen strong moving annual turnover (MAT) as at 31 May 2020.

In fact, SCA’s supermarket tenants increased year-on-year MAT by 4.4% through to 31 May.

I think this could be a good indicator of Woolworths’ performance so far given its dominance in the supermarket space.

Because the Woolworths share price is up just 0.7% for the year, it may be undervalued right now.

For context, the Coles Group Ltd (ASX: COL) share price is up 11.5% in 2020 while the S&P/ASX 200 Index (ASX: XJO) is down 10.95%.

This means that the Woolworths share price is underperforming its rival but outperforming the ASX 200 benchmark.

However, Woolworths is more of a conglomerate when compared to Coles’ singular supermarket focus.

One particular drag in 2020 has been Woolworths’ pubs business, ALH Group.

Tight restrictions on the hospitality sector have hurt earnings from ALH this year. However, as restrictions ease, the group could prove to become more of an asset to the Woolworths share price.

If supermarket turnover continues to climb, combined with increased pubs revenue, this could spark the Woolies share price to climb in 2020.

Foolish takeaway

The Woolworths share price is roughly unchanged from where it started the year. 

However, the positive update from SCA Property yesterday has got me thinking about whether it’s undervalued.

Given the strong momentum behind ASX shares since the March bear market, I think Woolworths could be heading higher before the end of the year.

More reading

• ASX 200 down 0.2%: Afterpay hits record high, TPG Telecom merger vote
• Alphabet soup: Is the ASX 200 in for a V-shaped COVID recovery or rolling Ws?
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET, Wesfarmers Limited, 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.

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A V-shaped market recovery following COVID-19 is less likely than “rolling Ws”, says Liz Ann Sonders, Chief Investment Strategist at Charles Schwab.

Sonders recently shared her thoughts on the COVID-19 market performance and outlook via an article on the Charles Schwab website. 

Disconnect between the share market and economy  

Sonders stated that the No. 1 question she is fielding lately relates to the “disconnect between the stock market and the economy.” 

Certainly, the disconnect is present in the Australian share market too, with the Australian Financial Review (AFR) reporting on 3 June that the ASX 200 remained “unfazed by recession talk as it hit a three-month high.” 

The market participants’ rose-tinted outlook prompted JPMorgan Asset Management’s Global Market Strategist, Kerry Craig to infer that, “if the economic data remains weak for the moment, markets are likely to continue to discount that as being backward looking.” 

However, Craig identified a risk; that markets are “pricing in a lot of good news that might not materialise in the second half of the year.” 

Indeed, the S&P/ASX 200 Index (INDEXASX: XJO) is currently trading largely flat, with Victoria reinstating certain restrictions amid second-wave fears. 

Related to Craig’s worry, Sonders stated that second half will grant: “clarity on the depth of the economic contraction via both the second quarter earnings season… and the initial read on second quarter real gross domestic product.”  

The upcoming earnings season and updated gross domestic product figures may very well send the markets on a W-shaped rollercoaster. 

Shares lead the economy

Investigating recession data post-Second World War, Sonders found that, with the exception of 2001, “the stock market’s peaks and troughs have pre-dated the economy’s peaks and troughs.” 

Sonders further stated that there is a “fairly consistent history of the stock market’s peaks and troughs coming at or before the peaks and troughs in the economy.” 

This, for Sonders, confirms the view that “the stock market is a leading economic indicator.” 

Sonders also mused that she will closely monitor investor sentiment, “near-term market peaks and troughs are often defined more by investor emotions than economic data.” 

Takeaways for ASX 200 

NAB’s own CEO, Ross McEwan echoed Sonders’s thoughts on the shape of the recovery, with the AFR releasing an article titled: “McEwan backs more stimulus, tips W-shaped recovery.” 

A W-shaped recovery will require a more circumspect investing approach and a sturdy constitution to handle the likely-lively ride ahead. 

In an important caveat, JPMorgan’s Kerry Craig offered the following:

“If we’re heading for weaker growth and lower inflation, investors need to look for companies that can protect margins long-term, hence security selection is more important right now than the top down macro narrative.”

Sonders herself concluded that “the stock market probably got a bit ahead of itself in pricing in a V-shaped recovery.”

The positive news about flattened curves across the globe and encouraging headlines regarding vaccines may have spurred the V-shape recovery thesis. 

Therefore, Sonders thinks that “stocks may continue to be at the mercy of virus-related news — in both directions.”

More reading

• Where to invest $10,000 in ASX 200 shares for 2030
• Ready to invest $5,000? I’d buy these ASX dividend shares today
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 finishes higher, Woolworths gives update
• Invest like Warren Buffett by buying and holding these ASX 200 shares

Motley Fool contributor Kiryll Prakapenka has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Alphabet soup: Is the ASX 200 in for a V-shaped COVID recovery or rolling Ws? appeared first on Motley Fool Australia.

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