Coles, arguably Australia's leading supermarket operator, is owned by Wesfarmers Ltd (ASX: WES), a company you can buy shares in, using the ticker code WES.
While you can't buy shares in Coles directly, you need to buy Wesfarmers to get exposure, the supermarket business continues to go from strength to strength. Hence, having exposure to the company may not be such a bad idea.
Here are three reasons why you should own shares in the owner of Coles:
- Know what you own. When most people open a stock broking account to buy shares, they get a 'hot tip' from a friend and go for broke on some exciting but mysterious business. While keeping it simple can sound boring — it makes sense. After all, chances are, you are shopping at Coles daily and handing a cashier hundreds or even thousands of dollars each month. Why not own a slice of that business? At least you'll be able to describe why you own shares at your next dinner party.
But if you like hot tips, here's one: Over time, I would be willing to bet you will do far better owning companies you know rather than some speculative dreadful. - Growing. In recent years, the skill of Coles' management has shone through as its key rival, Woolworths Limited (ASX: WOW), fell to its knees. Remember the late 2000's when people thought Coles was going bust (under different management)? While Coles (and Wesfarmers) is not a pedal-to-the-medal growth business, I expect the company to continue growing profits modestly for a long time. Sure, Aldi and Costco — two fantastic businesses — are a threat to the broader industry — just ask Metcash Limited's (ASX: MTS) IGA and independents. However, Coles has continued to grow.
Amazon, the U.S. eCommerce behemoth, may also be about to launch in Australia and is a genuine threat. But Coles recognises the threat and is streets ahead of rivals in terms of online ordering and speedy delivery. - More than supermarkets. Wesfarmers is the owner of companies such as Bunnings Warehouse, Officeworks, Target, Kmart and others. When you own shares in Wesfarmers you get Coles and all the other great businesses under the Wesfarmers banner, stoking growth potential and reducing risk.
Buy, Hold or Sell
Wesfarmers, the owner of Coles, has a lot going for it. But it is no secret Wesfarmers is one of the best companies in Australia, so the market has cottoned on and priced it shares accordingly.
Our job as successful investors is to develop what is called a variant perception. That means asking ourselves what we know or believe the market is missing, and determining whether we exploit that belief at the current valuation.
For example, maybe you think Officeworks will be 10 times more profitable in five years whereas the market thinks it has terrible customer service, is ludicrously expensive and has no competitive advantage whatsoever (okay, maybe that's just me). Therefore, maybe the market has factored in no growth for Officeworks in the valuation of Wesfarmers shares. You may be able to exploit that.
In my opinion (note: opinion), Wesfarmers shares are a little expensive and a dyed-in-the-wool value investor would not buy in today. But for those who plan to buy in and hold for the long-term, I also think you could do far worse than buy Wesfarmers.
