Are Woolworths shares worth buying for their defensive properties?

Are Woolworths shares a defensive inflation hedge? Here’s what this expert reckons…

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Key points

  • Woolworths is one of the largest and most popular ASX 200 blue-chip shares
  • Many investors like Woolworths for its 'defensive' reputation
  • But is this company really a buying opportunity today?

Woolworths Group Ltd (ASX: WOW) is a company very familiar to most Australians. That’s largely thanks to its status as the largest supermarket chain in the country. But not only is Woolworths a popular business, it’s also a popular blue-chip share on the S&P/ASX 200 Index (ASX: XJO). Part of the appeal of Woolworths shares for many investors is arguably their reputation as a defensive investment.

Woolworths is a consumer staples company. That means its business is providing products that are ‘needs’ and not ‘wants’. That makes sense — we all need to eat, drink and buy household essentials after all. And Woolies is a popular choice in fulfilling these needs.

That in turn lends the company stability. We saw Woolworths’ revenues rise sharply during the first year of the pandemic in 2020 – a year that saw many other ASX shares suffer due to the effects of lockdowns. This defensiveness extends to other aspects of an investment in Woolworths, such as the company’s dividend.

But does that really make this company a good investment?

Are Woolworths shares a defensive buy today?

One ASX expert investor who thinks so is WaveStone Capital’s Raaz Bhuyan. Bhuyan recently spoke to Livewire on why he likes Woolies. Here’s some of what he had to say:

It’s a buy for us. Obviously, food inflation’s coming through, and Woolworths has got pricing power, so it’s good for inflation. But the other big thing that we like is Brad Banducci, who’s the CEO, has invested quite heavily on the online side. And now, their online business is twice the size of its nearest competitor. And our view is in five years’ time, they’ll be even bigger because that part of the business is growing faster. So, it is a buy for us.

So that’s pretty emphatic. The inflation point is an interesting one to note specifically. Inflation, long a dormant issue, has raised its head once more this year. So when investors are looking for ‘defensive’ qualities, inflation is arguably now a factor, in addition to the traditional ‘recession-proof’ qualities defensive investors usually look for.

But consumer staples businesses such as Woolworths can be inherently inflation resistant to a certain extent as well. It all comes down to that needs-based business model. No one likes paying more for food and household essentials. But that doesn’t stop most customers at the end of the day, especially if Woolies’ competitors are also raising prices.

So that’s why this ASX investing expert likes Woolworths shares today. It will be interesting to see if Bhuyan’s predictions turn out to be accurate.

At the time of writing, the Woolworths share price is up 0.46% at $37.08. This ASX 200 blue chip has a market capitalisation of $44.73 billion, with a dividend yield of 2.53%.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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