2 bargain blue-chips: Wesfarmers Ltd and JB Hi-Fi Limited

November’s consumer confidence score of 101.7 was rather unexpected and caught a number of investors off-guard. That’s because it was a major rise from October’s 97.8, with November’s score of over 100 indicating that optimists outweigh pessimists among the 1,200 Australian households that are surveyed each month.

Of course, the 3.9% rise in just one month could prove to be an anomaly. For example, in February of this year it rose from 93.2 to 100.7, but by July it was back down to 92.3. Or, it could signify that interest rate cuts are finally having a positive impact after their time lag and that the domestic economy may avoid a painful recession next year.

Either way, a number of retail stocks appear to be worth buying due to their share prices falling in recent months. For example, Coles owner Wesfarmers Ltd (ASX: WES) is down by 6% since the turn of the year and now trades on a price to sales (P/S) ratio of 0.7, which is half of the ASX’s P/S ratio.

Furthermore, Wesfarmers yields 5.2% (fully franked), which is 70 basis points higher than the index’s yield. And, with the company benefitting from a conglomerate structure, it has the potential to deliver relatively stable rises in profitability in the medium term as evidenced by earnings growth forecasts of 4.1% per annum over the next two years.

In addition, Wesfarmers is focused on becoming leaner and more efficient, while investment in pricing in its key Coles division saw increased volumes, transactions and basket size in its recent quarterly results. And, with enhancements to the physical and digital offers within its office supplies division, Wesfarmers appears to be well placed to continue the 6.5% growth in comparable sales recorded in that quarter. With the right strategy, relatively high yield and appealing share price, Wesfarmers appears to be a sound buy.

Similarly, JB Hi-Fi Limited (ASX: JBH) has recorded a share price fall of 12% in the last six months. It is in the process of adapting its business model as it seeks to generate a larger proportion of its sales online. In fact, just 2.4% of total sales are made online and this presents a real opportunity for growth to enable the company to continue the run which has seen its bottom line rise at an annualised rate of 21.1% during the last ten years.

Furthermore, JB Hi-Fi is investing heavily in its store network, with a programme of refurbishment and refreshing of stores likely to have a positive impact on customer loyalty. This, plus a shift in product mix toward smaller household appliances, should help to keep JB Hi-Fi competitive and, alongside the rebranded JB Hi-Fi Solutions, sets the company up for growth in its bottom line of 4.3% per annum during the next two years.

Like Wesfarmers, JB Hi-Fi trades at a discount to the ASX, with it having a P/S ratio of just 0.5. This potential for an upward rerating plus a dividend yield of 4.8%, marks JB Hi-Fi out as an excellent buy.

Despite this, there is another ASX stock that I believe is an even better buy than Wesfarmers or JB Hi-Fi.

It has recently been named as The Motley Fool's Top Stock For 2015 and could make a real impact on your bottom line in 2015 and beyond. And, in time, it could help you retire early, pay off your mortgage, or simply enjoy a more abundant lifestyle.

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Motley Fool contributor Peter Stephens has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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