Should Wesfarmers Ltd shareholders be worried?

Wesfarmers Ltd (ASX: WES), the owner of Coles, Bunnings Warehouse, Kmart, Target, Officeworks and more, could form the bedrock of almost any share portfolio.

Source: Google Finance

Source: Google Finance

The conglomerate has exposure to almost every facet of retail, which is a very large contributor to the Australian economy.

As arguably the leader in groceries, Coles provides healthy exposure to non-discretionary spending — items you’ll likely continue to purchase even in a recession — while its specialist retailers provide cyclical boosts to earnings.

Although its profits are not completely immune to economic downturns, if you asked investors which ASX-listed companies they’d expect to survive, chances are, Wesfarmers would be included.

Nonetheless, as can be seen in the chart above, the company hasn’t always been a winning investment. So the challenge for investors is sorting the market ‘noise’ from the fundamentals of the business. Of course, that can often appear easier said than done.

Keeping up to date on the business’s strategy and performance is vital. For example, Wesfarmers recently recorded a huge amount of write-downs related to prior acquisitions. These may give the impression the company isn’t growing, but this may not be the case.

Moreover, the recent expansion into the UK hardware market has some investors concerned. While it’s very early days yet, it’s important investors monitor the success of that venture over the coming years and determine if management will be too proud to cut their losses. Woolworths Limited (ASX: WOW) shareholders know the feeling.

Foolish takeaway

If you’re a current Wesfarmers shareholder from lower prices, provided you maintain a diversified portfolio I see no reason to sell shares. The company is likely to grow modestly and is also likely to continue paying a decent dividend in times of low interest rates and market uncertainty.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned in this article. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

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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