Wesfarmers Ltd (ASX: WES) is a good business.
It's something that has been reflected in a solid average return to shareholders over the past five years.
In fact, Wesfarmers' shares have outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by double-digit percentages while its number one rival, Woolworths Limited (ASX: WOW) has been unable to surpass the market's return.
Here are three quick reasons why investors should consider owning Wesfarmers' shares in their portfolio:
- Management. Wesfarmers is an old-school conglomerate business, with its West-Australian origins dating back more than 100 years. Since it's been in operation for so many years, Wesfarmers' management teams have remained in their roles for extended periods, with the best managers imprinting the business with a meaningful legacy. Wesfarmers has had just 11 Chairmen of the board in 100 years.
- Coles outperforming. Credit also flows to Wesfarmers' management team for recognising the potential of Coles, Australia's second-largest supermarket retailer. According to some analysts, the Coles business was in dire straights when Wesfarmers made its move on the company prior to the GFC. However, the Coles franchise is now stronger than ever and chipping away at Woolworths' incumbency.
- Diversification. Wesfarmers' expertise isn't limited to non-discretionary retail. Though the industrials and resources businesses may be struggling now, Wesfarmers has driven its Kmart, Target, Officeworks and Bunnings Warehouse operations into much stronger market positions. Specifically, the markets for Bunnings and Officeworks are large and growing, providing a well-diversified portfolio of assets.
Buy, Hold or Sell?
Wesfarmers is undoubtedly one of the best blue chip stocks on the ASX. However, I'd like to see a slightly lower share price before hitting the buy button on its shares. Nonetheless, Wesfarmers' shares deserve a spot on every savvy investor's watchlist.
