The Wesfarmers Ltd (ASX: WES) share price has had its fair share of volatility in 2016 and is likely to see out the year underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Are Wesfarmers Ltd shares a sell in 2017?
As the owner of Coles, Kmart, Target, Officeworks and Bunnings Warehouse there is a lot to like about Wesfarmers.
The $47 billion company continues to power ahead of key rival Woolworths Limited (ASX: WOW), which may soon get stuck battling for second place in the supermarket sector with another rival in Aldi. Moreover, Coles appears best prepared for the challenge of online, including the threat of Amazon.
However, the valuation of Wesfarmers shares is likely where the investment thesis becomes undone. At its current price of $42 per share, it is hard to see its shares hitting a home run for investors. Do not get me wrong, boring is good. But boring things usually cost less than exciting things. Indeed, you do not want to overpay for low — or no — growth.
At today's price, Wesfarmers shares trade on a relative valuation in excess of the market, but offer a healthy forecast dividend yield of 5% fully franked. According to the analysts surveyed by The Wall Street Journal shares trade just 1% below fair value — hardly a bargain.
Foolish Takeaway
Wesfarmers is one of two major providers of consumer goods to the Australian market. However, those investors who choose to buy shares today would not be getting a bargain in my opinion.
Therefore, I believe Wesfarmers shares are closer to a 'hold' than a 'buy' or 'sell' leading into 2017.
