The Woolworths Group Ltd (ASX: WOW) share price has been one of the best performing blue chips on the ASX 200 index in 2020.
Thanks to another solid gain on Tuesday, the conglomerate’s shares are now up 10.5% since the start of the year.
Why is the Woolworths share price up 10.5% in 2020?
Investors have been buying the company’s shares this year thanks to the easing of deflationary pressures in the supermarket industry.
Deflation had been weighing heavily on the margins of supermarkets over the last couple of years.
But over the last couple of quarters these pressures have been easing and are putting the supermarkets in a much stronger position.
For example, according to the ABS, during the December quarter the drought led to the prices of meat and seafood products lifting 1.7%, dairy and related products increasing 2.2%, and bread and cereal products by 1.3%.
It looks set to be a similar story during the current quarter due to the bushfires which have devastated parts of Australia.
What else is lifting its shares?
In addition to this, the outlook for interest rates and positive broker notes have supported its shares.
In respect to the former, Woolworths has long been a firm favourite with income investors. So with the cash rate expected to go lower again in 2020, investors hunting for yield are likely to have been attracted to its shares.
Can its shares go higher?
One broker that still believes Woolworths can go higher from here is Macquarie. According to a note out of the investment bank this week, it has upgraded its shares to an outperform rating with an increased price target of $42.40.
This price target implies potential upside of 6% from today’s close price.
Macquarie likes Woolworths due to its dominant market position and the prospect of efficiency gains in the coming years.
It also believes the company could undertake capital management initiatives once the Endeavour Drinks spin-off is completed.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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