The Motley Fool

Is Wesfarmers Ltd a buy?

What: The Australian Financial Review is reporting that broker Goldman Sachs has reiterated its ‘buy’ recommendation on blue-chip conglomerate Wesfarmers Ltd (ASX: WES).

So what: The call comes in the wake of Wesfarmers receiving final regulatory approvals and settlement of the $1.845 billion sale to Insurance Australia Group Limited (ASX: IAG) of its insurance underwriting operations. According to analysis by Goldman Sachs this could potentially lead to a $1.30 per share capital return to shareholders although the broker believes a pay-down of debt may be a more likely outcome.

Now what: Many investors have been attracted to Woolworths Limited (ASX: WOW) in preference to Coles, owned by Wesfarmers, due to the market leading margins and positioning of Woolworths. This has resulted in Woolworths share price outperforming Wesfarmers over the past twelve months, although both stocks have underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

For contrarian investors however, the stronger growth potential lies with Coles and this is an important factor underlying the investment case for Wesfarmers. With the share price of Wesfarmers currently around $41.70 and the Goldman Sachs target price at $52.27, this suggests upside of around 25% and supports a compelling ‘buy’ case.

One more company every investor must know!

Don't miss it! Top Motley Fool investment advisor Scott Phillips has just named his #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.