Why I'm holding on to my Wesfarmers shares in 2019

Here's why I'm holding on to Wesfarmers Ltd (ASX: WES) shares in my portfolio in 2019.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The beginning of a new year is a time when many people look to rebalance their portfolio. The act of rebalancing allows us to better position our portfolio for greater potential profits.

Here's why I'm holding on to Wesfarmers Ltd (ASX: WES) shares in my portfolio in 2019.

Wesfarmers recently divested Coles Group Ltd (ASX: COL) and sold its 40% stake in its Bengalla joint venture. The sales will allow Wesfarmers to focus on its higher growth areas and position itself for new acquisitions.

Wesfarmers still holds a sturdy group of retailers including Bunnings Warehouse, Officeworks, Kmart, and Target, even after divesting Coles.

Bunnings

In recent years, Bunnings Warehouse has been the star performer for Wesfarmers. In FY2018, year ended 30 June, Bunnings Warehouse achieved strong same-store sales growth of 8.9% and an increase in earnings before interest and tax (EBIT) of 12.7%. Wesfarmers' management is optimistic and expects Bunnings Warehouse to continue its growth in 2019.

Officeworks

Officeworks has achieved steady growth over the past decade and in FY2018, its EBIT grew by 8.3%. Officeworks has further plans to expand in FY2019 with six new stores, online enhancements, and a focus on its B2B segment.

Kmart and Target

Kmart and Target combined achieved EBIT growth of 21.5% in FY2018, the highest growth rate out of all of Wesfarmers' group of retailers. The EBIT growth for Kmart and Target was mainly driven by stronger sales growth for Kmart during the period.

Unfortunately, Wesfarmers' on Monday announced in the most recent trading update that comparable store sales for Kmart are likely to decline 0.6% in the half-year ending December 31, 2018. The sales growth was impacted by the weaker Christmas sales, planned exit of low margin DVDs, and weaker apparel sales, particularly in womenswear.

I believe Target, which is reinventing its business model to increase revenue, together with Kmart will certainly keep Wesfarmers' management on their toes.

Wesfarmers' share price is now trading at about 15 times estimated earnings for FY2019.

Foolish Takeaway

Bunnings, Kmart, Target, and Officeworks have established themselves firmly as household brands in Australia. Despite the recent setback for Kmart in sales, I believe it may just be a glitch before Kmart resumes its growth.

Overall, I believe that Wesfarmers has set itself up for a positive long-term growth outlook with its 'new-look' business portfolio. For long-term growth potential for my portfolio, I'm holding my Wesfarmers shares.

Motley Fool contributor Ivan Loh owns shares of Wesfarmers Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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.

More on Share Market News

Investor sitting in front of multiple screens watching share prices
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave the thumbs up to these ASX shares last week. Why are they bullish?

Read more »

Jessica Amir
Investing Strategies

6 ASX shares to buy and hold until the next leap year

These are the stocks to store in the portfolio until the next February 29 rolls around in 2028, according to…

Read more »

A woman ponders a question as she puts money into a piggy bank with a model plane and suitcase nearby.
Share Market News

If I invest $10,000 in Qantas shares, how much passive income will I receive in 2024?

Here's what analysts are predicting from the airline operator.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Big returns could be on the cards according to analysts.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Value Investing

Looking for ASX value shares? Here's 1 I'd buy and 1 I'd avoid!

It's not an easy exercise to identify which stocks are undervalued and which ones are simply terrible. Here's an example…

Read more »

A young girl looks up and balances a pencil on her nose, while thinking about a decision she has to make.
Opinions

Will I be buying Zip shares now the company has turned a profit?

Is now the right time to buy this BNPL stock -- or not?

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape
Opinions

1 ASX dividend stock down 55% to buy right now

Here's why I think this beaten-up stock could be an opportunity.

Read more »

Three analysts look at tech options on a wall screen
Share Market News

Here's how the ASX 200 market sectors stacked up this week

ASX tech shares are on fire, leading the 11 market sectors for a third consecutive week.

Read more »