The retail sector enjoyed a spot of sunshine yesterday and retail giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) certainly weren't left out. With the announcement from the government on Tuesday night that the latest budget would look to provide immediate "accelerated depreciation" to small business owners, the retail sector was back in vogue with investors.
Adding impetus to the rally was a solid sales update from department store Myer Holdings Ltd (ASX: MYR) which leapt 10.3% but still remains close to all-time lows. Investors sent Woolworths' share price 2.6% higher and Wesfarmers' shares 1.5% up as they bet on the policy making it though the Senate and benefiting listed consumer discretionary stocks.
Also joining the party was JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Super Retail Group Ltd (ASX: SUL), which gained 2.1%, 5% and 4.5% respectively.
Should you buy? There is no doubt that more money sloshing around the economy will likely find its way into the cash registers of listed retailers. It's easy to imagine that small business owners may look to upgrade their computer and telecommunications equipment, their office furniture or invest in some new hardware tools.
As we saw back at the time of the Global Financial Crisis when a "cash splash" was also utilised to spur economic growth it is likely to provide a short-term boost to sales for the retail sector.
In the long-term however, the effect of the government's largesse on these listed entities will be minimal and the long-term value of these retailers is not going to be dramatically altered by these short-term measures. As always, just as it's "buyer beware" for shoppers, it's also buyer beware for investors who buy stocks for their momentum and not for their long-term value. A discount to valuation should always be your primary motivation for buying a stock.
