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Will Coles shares continue to outperform Woolworths shares in 2020?

Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) shares have both outperformed the market in 2020. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is down 20.03% in 2020, whereas Coles is up 1.93% and Woolworths is down by 3.38%.

Now, we all know that past performance is not a reliable indicator of future performance. Having said that, here’s why I think Coles shares can continue to outperform Woolworths shares in 2020.

Coles shares have strong momentum

The Coles share price is up 1.93% in 2020 (at the time of writing) and has been pushing ahead of Woolworths. Both Aussie retailers look set to see a significant earnings boost from recent coronavirus-induced panic buying. In fact, even as the panic buying subsides, the supermarket chains could continue to benefit.

We could see a shift in consumer behaviour given the tough economic times. I think both Coles’ and Woolworths’ earnings could climb higher as consumers cut costs by cooking at home rather than eating out, even once the pandemic threat has passed.

Coles shares have some strong positive momentum behind them, which I think could be beneficial in the months ahead.

Woolworths shares are weighed down by a struggling pubs business

While both Coles and Woolworths shares have outperformed, Woolworths has lagged behind its rival. I think that is partly due to Woolworths’ struggling pubs business.

Woolworths owns ALH Group and recently postponed its drinks demerger. The Aussie conglomerate also stood down 8,000 staff as the pubs shut their doors amid coronavirus restrictions.

The damage here is two-fold for Woolworths shares compared to Coles shares. The independent value of ALH Group is likely to be hammered by the recent shutdowns and economic environment. On top of that, the group has to deal with the limited cash flow and costs associated with current operations.

Foolish takeaway

Despite these key factors, you can also argue the opposite. Woolworths shares may climb higher thanks to more diversified earnings and better retail store performance.

No one knows what will happen in the next 7 months, but I think both ASX 200 shares could prove to be good defensive buys in the current economic environment.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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.