ASX large-cap stock Woolworths Group Ltd (ASX: WOW) has had a challenging year in 2024, down almost 9% since January.
At the time of writing on Monday, shares in the supermarket giant are floating less than 1% lower at $33.90 apiece.
Despite this near-term downside, analysts are taking a long-term approach in their views on the company.
In my opinion, Woolworths possesses several defensive qualities and brand loyalty, which are key factors that could push the stock higher in the years ahead.
Here's why Woolworths could be an ASX large-cap stock worth a look for your investment portfolios.
ASX large-cap stock for the long-term
Woolworths is a name entrenched in Australian society. It is synonymous with Aussie namesakes like "gum trees" and "shrimp on the barbecue".
On the last count, 340 Woolworths stores were operating in Australia, or around 31% market share. Here are three reasons a leading broker is bullish:
1. Potential for high returns
Goldman Sachs issued a buy rating for Woolworths last month with a price target of $40.20. At the time of writing, this suggests an 18.5% upside.
The broker also forecasts the ASX large-cap stock to pay fully franked dividends totalling approximately $1.10 per share in FY25.
This would result in a 3.2% dividend yield. When combined with the anticipated share price increase, investors could see a total return of around 22% over the next year.
To put that into context, the long-term pre-tax return of the S&P/ASX 200 Index (ASX: XJO) is about 10% per year.
In an environment where many stocks are struggling, this potential return does stand out.
2. Defensive ASX large-cap stock
Woolworths is Australia's largest supermarket chain. It also has a significant presence in New Zealand and operates the Big W retail segment. Who doesn't like going to Big W to shop?
Goldman Sachs believes that Woolworths' strong consumer loyalty and its ability to pass on cost inflation will help it maintain – and possibly grow – its market position.
This is especially relevant in today's inflationary environment. The broker also points out that Woolworths' current share price is below its historical average since 2018.
For investors, this might fulfil the criteria for those looking for a high-quality, defensive large-cap stock.
In uncertain times, such defensive and larger businesses can provide stability and potential growth. Sectors like healthcare and consumer discretionary (where Woolworths lies) are the best examples.
At the end of the day, no matter what the economic climate, people will always need food and healthcare.
3. New CEOs? No worries
Recently, Woolworths announced the departure of its supermarkets CEO, Natalie Davis, and group CEO Brad Banducci. Talk about a 'double-dip'
Both will leave the company in September.
Normally, the exit of key executives would be a red flag for investors. However, Goldman Sachs remains confident in Woolworths' future, again adopting a long-term view.
The broker believes Banducci's replacement has what it takes to turn on the growth afterburners at Woolworths.
Amanda Bardwell comes from having led Woolies X, the company's digital and multi-channel business. This kind of experience in digital growth could be critical, in my view, as Woolworths expands its online and digital offerings.
Goldman Sachs also notes that the talent pool within the supermarket retail sector is "deep". This suggests that finding a replacement for Davis will not be overly challenging.
The broker does not expect Davis' departure to significantly impact Woolworths' Australian Foods business either – the core of the company's operations.
Foolish takeaway
For investors seeking to add a dependable ASX large-cap stock to their portfolio, Woolworths might be a contender. Broker Goldman Sachs is on the bullish side too.
With its dominant market position, the potential for solid returns, and a promising leadership transition, Woolworths might offer a compelling investment case.
As always, remember to conduct your own due diligence and consult a professional when needed before making any investment decisions.
