Since hitting a high of $12.55 early last year, shares in shopping centre giant Westfield Group (ASX: WDC) have significantly lagged behind the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). In fact, while the market has risen 6% in that time, Westfield has dropped by 14.9% based on investors’ concerns regarding the future of the bricks-and-mortar retail industry, as well as uncertainty over the controversial merger proposal with Westfield Retail Trust (ASX: WRT).
However, the company is shaping up as a very attractive prospect at today’s price of just $10.68. Here are three reasons why you should consider buying now:
The rapid rise of the online retail sector has spooked some investors regarding the future of bricks-and-mortar retailing. Indeed, it is justifiable that they are cautious, particularly considering the struggles that retailers like Myer Holdings Ltd (ASX: MYR) and David Jones Limited (ASX: DJS) have endured with more and more purchases being made from competitors’ online stores.
To address these issues, Westfield has been divesting its non-core assets and redeploying the proceeds into its development pipeline. It is redeveloping its more profitable and iconic assets to ensure they attract greater foot traffic. In addition, the strengthened shopping centres will likely attract larger retailers which will help drive earnings.
One of the reasons I prefer Westfield Group as an investment over Westfield Retail is its exposure to international markets (which it will have regardless of whether the merger proposal is approved by shareholders). As part of its strategy to strengthen its most iconic stores, it is redeveloping centres like Westfield London, Croydon (in London’s south) and its World Trade Centre mall, located at Ground Zero in New York.
While each of these centres are expected to be amongst the group’s most popular and most profitable, they will also benefit from increased consumer sentiment in the recovering US and UK economies.
Over the last 18 months or so, investors have swarmed towards the highest yielding blue-chip stocks like the big four banks or Telstra Corporation Ltd (ASX: TLS). As is made obvious by the stock’s 14.9% drop since last May, investors have largely chosen to ignore the 4.9% yield offered by Westfield. Given that the shares could begin to climb after the vote is held for the merger proposal late in May, now is the time to be taking advantage of the high yield on offer.
As is the case with any stock, the best time to buy is often when the market has its doubts over the company’s future. That time seems to be right now for Westfield Group.