Has 2022 proven Woolworths is a defensive ASX share?

We check whether the supermarket giant has lived up to its reputation as a defensive share.

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Key points

  • We all know 2022 has been a tough year for ASX 200 shares
  • Blue chip Woolworths is often touted as a defensive ASX share
  • But how defensive has it really been over this year?

It’s no secret that 2022 thus far has proven to be an exceptionally difficult year for ASX shares. Over the year to date, the S&P/ASX 200 Index (ASX: XJO) is still down by a notable 13.7% or so, even with today’s gains. But let’s check out how the Woolworths Group Ltd (ASX: WOW) share price has fared.

Woolworths shares are often held up as ‘defensive’. That’s probably because Woolworths is a large, mature blue-chip, dividend-paying ASX share that operates in the consumer staples sector of the market. Because the company sells food, drinks, and household goods, it has a reputation as being recession-resistant, inflation resistant, and stable.

This is true to an extent. We all need to eat, drink, and keep our households running, no matter the economic conditions.

But does this truly make Woolworths shares a defensive investment? Let’s see how this company has fared over 2022. After all, this year has been dominated by concerns over inflation, interest rates, and a possible looming recession. So it will be interesting to see how Woolies shares have fared amid these concerns, given its defensive reputation.

So Woolworths shares started the year at a share price of $38.01. Today, the company is going for $34.24 a share at the time of writing. That’s a year-to-date loss of 9.9%.

That loss is a few percentage points less than what the ASX 200 has delivered over the year so far. Therefore, we can say that Woolworths shares have outperformed the market over 2022 as it currently stands. And, by extension, we can indeed conclude that, at least over this year, Woolworths has been an effective defensive share.

Is the Woolworths share price a 2022 buy?

It could get even better for Woolies investors too. As my Fool colleague James recently discussed, broker Goldman Sachs reckons the Woolworths share price could decisively recover over the next 12 months. This ASX broker currently rates Woolworths shares as a buy, with a 12-month share price target of $41.70. If that came to pass, it would mean an upside of more than 22% from the current share price.

Goldman justified this optimism by noting it is “encouraged by the resilience and superior operations” of Woolworths. The broker expects continuing price growth from the company, which should protect its margins as “COVID costs roll-off and cost efficiencies continue”.

No doubt that will come as good news for investors today.

At the current Woolworths share price, this ASX 200 blue chip has a market capitalisation of $41.49 billion, with a dividend yield of 2.75%.

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 Scott Phillips.

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