With the share prices of retail giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) at an all-time high and a five-year high respectively, some investors may be overlooking the opportunities which these two large-cap stocks are currently presenting.
Despite the run up in their share prices both stocks still look appealing on a long-term investment horizon. Here are four reasons why investors should be keeping an eye on both Woolworths and Wesfarmers.
1) Growth at a reasonable price (GARP) – According to Morningstar's broker consensus data, Woolworths is forecast to grow earnings per share (EPS) from FY 2014 to FY 2015 by 6.7%, implying the stock is trading on a forward price-to-earnings (PE) ratio of 18.1. Meanwhile, Wesfarmers is forecast to grow EPS by 8.3%, implying a forward PE ratio of 19.2.
Accounting for the growth and blue chip status of these stocks, both retailers arguably meet the GARP test.
2) Quality – While some investors may rightly question the 'quality' of some of Wesfarmers' business divisions – particularly the coal assets – the fact is that both firms are now primarily exposed to non-discretionary consumers through their enormous food and liquor chain empires. These businesses literally make millions of transactions each week to the majority of Australian consumers, providing shareholders with defensive and reliable streams of income.
3) Yield – Although the historic fully franked dividend yield currently available on Woolworths and Wesfarmers' stock isn't as enticing as the yields available from the likes of National Australia Bank Ltd. (ASX: NAB) or Telstra Corporation Ltd (ASX: TLS) there is possibly more upside potential. In the case of Woolworths, a successful implementation of its Home Improvement strategy will free up and create cash flows for higher future dividend payouts while a rebound in earnings from the non-retail divisions of Wesfarmers could also allow for a major boost in its dividend payout.
