Are Woolworths shares a good defensive buy right now?

Has the Woolworths share price run too high?

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Key points
  • Woolworths is regarded as one of the ASX's most defensive blue chip shares
  • This can probably be attributed to the company's dominance of the Australian grocery sector, which is famously resistant to economic shocks
  • However, one ASX expert reckons investors might want to look at taking some profits off the table

Woolworths Group Ltd (ASX: WOW) has a reputation as one of the most defensive shares on the S&P/ASX 200 Index (ASX: XJO). And it's not hard to see why.

Woolies is a company that almost every Australian would be familiar with. Its position as the largest and most dominant grocer and supermarket operator is enough to foment a reputation as a top defensive stock.

Since Woolies predominantly sells food, drinks, and household essentials, it falls into the consumer staples sector of the market. Consumer staples shares are widely regarded as the most defensive shares on the ASX. That's because we all need to eat, drink, and buy toothpaste and laundry powder, regardless of what is happening in the broader economy.

So we know Woolworths is a defensive share. But what we don't yet know is if this ASX 200 blue chip share is a good defensive buy right now. A company's earnings can be defensive but when it comes to its share price, things can often be quite different.

Woman thinking in a supermarket.

Image source: Getty Images

Are Woolworths shares a good defensive buy today?

Well, one ASX expert who reckons it might be time to look elsewhere right now is Harrison Massey of fund manager Argonaut. Massey was asked his views on Woolworths in a recent posting on The Bull. Here's what he had to say on the Fresh Food People:

The supermarket giant reported a strong third quarter, generating group sales of $16.338 billion. It represented an 8 per cent increase on the prior corresponding period. Inflation in Australia appears to have peaked.

Moving forward, supermarkets across the board may experience margin pressure on products if inflation falls. It may be an opportune time for investors to consider locking in a profit.

When Massey says 'lock in a profit', he is presumably referencing the Woolworths share price's 14.66% gain over 2023 to date, as well as its 18.4% rise since early November last year:

Quite the return for just a few months.

And it's not as though Woolworths shares are trading on a particularly cheap multiple today either. Right now, the Woolies share price has a price-to-earnings (P/E) ratio of 27.93.

Not only is that well over what rival Coles Group Ltd (ASX: COL) is treading on right now (21.74), but it also exceeds every one of the top ten shares of the ASX 200 Index at present. That's with the sole exception of healthcare giant CSL Ltd (ASX: CSL).

So there you have it – one ASX expert who reckons the Woolworths share price isn't looking too defensive right now. Remember, a business can be defensive but still have a share price that is trading on a high (and not so defensive) earnings multiple. That might just be the case with Woolworths shares at present, at least according to Massey.

 

Motley Fool contributor Sebastian Bowen has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has positions in and has recommended Coles Group. 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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