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Is the Wesfarmers Ltd share price a buy?

The Wesfarmers Ltd (ASX: WES) share price hasn’t done much over the past five years, with it being between $40 to $45 for nearly the whole time period.

Wesfarmers has actually been generating some decent growth during that time, particularly its crown jewel business, Bunnings.

In Wesfarmers’ latest half-year release the Australian Bunnings was actually the largest contributor of earnings before interest and tax (EBIT) to the group. It replaced Coles as the leading business and that isn’t going to change with Wesfarmers announcing it would separate Coles into its own ASX-listed business.

Some market analysts think this will be a good move. It should unlock value for shareholders and allow Coles to do what it needs to do, namely lower prices where necessary.

The question on most people’s lips is about what Wesfarmers will do next. What businesses is the conglomerate looking at that it thinks will drive future growth? UK Bunnings has not been a succes so far.

Some people think it could be Fletcher Building Limited (ASX: FBU), whilst others point to a healthcare business like Healthscope Ltd (ASX: HSO). Whatever Wesfarmers management decide to do, it needs to diversify away from retail. Officeworks and Target are prime targets for disruption from online competition like Amazon.

One of the main reasons why people invest in Wesfarmers is for its dividend, which is currently a handy grossed-up yield of 7.6%. This is attractive, but I think there are shares out there with stronger dividends like WAM Capital Limited (ASX: WAM).

Foolish takeaway

Wesfarmers is trading at 17x FY18’s estimated earnings. I wouldn’t want to buy the current version of Wesfarmers, but if it is able to reposition its business into growing industries like healthcare or infrastructure then Wesfarmers could be a lot more attractive to me.

For now, I’d much rather invest my money into this top growth stock instead.

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Motley Fool contributor Tristan Harrison owns shares of HEALTHSCPE DEF SET. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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