Those invested in S&P/ASX 200 Index (ASX: XJO) consumer discretionary stocks are likely aware that rising inflation and interest rates can pose a risk to companies operating in the space. But shares in Wesfarmers Ltd (ASX: WES) could be well positioned to dodge major impacts.
The company is behind such iconic retail brands as Bunnings, Kmart, and Officeworks. And that could be its saving grace, according to one expert.
Right now, the Wesfarmers share price is trading at $43.34, 0.14% higher than its previous close.
For context, the S&P/ASX 200 Index (ASX: XJO) is currently 1.98% lower while the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) is down 0.68%.
Let's look at why this fundie expects Wesfarmers shares will push through Australians' increasingly tight purse strings.
Could this buoy Wesfarmers shares amid cost of living pressures?
Rising inflation and interest rates generally increase the cost of living. This, in turn, often drives consumers to hold onto their hard-earned cash, rather than funnelling it into discretionary spending.
But Wesfarmers' "strong retail brands" should allow it to "ride out pressures on household budgets", Seneca Financial Solutions investment advisor Arthur Garipoli says, courtesy of The Bull.
Garipoli noted Bunnings contributes significantly to the company's earnings and faces fewer risks of potentially weakening consumer spending.
The business brought in $2.2 billion of pre-tax earnings last financial year, a 0.9% year-on-year improvement despite the impact of COVID-19-induced lockdowns.
On announcing the company's full-year earnings, Wesfarmers managing director Rob Scott highlighted the "resilience of [Bunnings'] operating model and ability to deliver growth through a range of market conditions".
Indeed, Garipoli said Aussies are likely to continue shopping at the hardware chain as they invest in their homes despite the rising cost of living. As a result, he rates Wesfarmers shares as a hold.
In addition to Bunnings' resilience, Wesfarmers has an often-elusive trait that could help buoy its earnings – pricing power.
As my Fool colleague Mitch reported last month, the company's pricing power could help it dodge the worst inflationary impacts.
Finally, broker Morgans has dubbed Wesfarmers' retail portfolio "one of the highest quality … in Australia".
It has an add rating and a $55.60 price target on the company's stock, representing a potential 29% upside, as The Motley Fool Australia's James reports.
