Is Wesfarmers Ltd (ASX: WES) the best ASX blue chip to buy?
Well, first, what's the definition of a blue chip? Does it mean the ASX 100? ASX 50? ASX 20? If we're talking about the ASX 100 there are a few shares I'd rather own, but in the ASX 20 Wesfarmers could claim to be the best idea.
The composition of Wesfarmers' operations has changed in recent years. Bunnings UK & Ireland was only a quick excursion, it sold coal assets and divested Kmart Tyres and Auto.
These days Wesfarmers is largely a retailer consisting of Bunnings, Officeworks, Kmart and Target. I'd say only Bunnings comes close to competing with CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG), which are my other two favourite ASX 20 shares.
But Wesfarmers has also made a couple of interesting acquisitions. Catch Group expands Wesfarmers' online capabilities and Kidman Resources could be a good lithium play whilst generating synergies with Wesfarmers' industrial division.
Wesfarmers also retains significant stakes of BWP Trust (ASX: BWP) and Coles Group Limited (ASX: COL).
The key reason why I think Wesfarmers could be the best blue chip is because it is willing to acquire and divest subsidiaries at the appropriate times. CSL is always going to be a healthcare share, Macquarie will always be an investment bank and BHP Group Ltd (ASX: BHP) will always be a resource business.
Wesfarmers has the flexibility to acquire businesses wherever it sees an opportunity, like Kidman Resources.
I also appreciate that Wesfarmers has a strong focus on shareholder returns, which is ultimately why we invest in shares in the first place.
Foolish takeaway
Bunnings continues to grow its earnings, which I think is key for shorter-term success for Wesfarmers. The company is trading at 23x FY20's estimated earnings with a projected FY20 grossed-up dividend yield of 5.2%.
I think Wesfarmers is one of the best ASX blue chips, although I'd feel better if it had more non-Australian earnings.
