Over the past 12 months, Coles Group Ltd (ASX: COL) shares have strongly outperformed the benchmark index, while Woolworths Group Ltd (ASX: WOW) shares have seriously underperformed.
Since this time last year, the S&P/ASX 200 Index (ASX: XJO) has gained a healthy 8.1%.
Over this same period, Woolworths shares have fallen a painful 19.2%, while Coles shares have surged 27.1%.
Both supermarket giants also pay dividends. And on that front, their trailing dividend yields are fairly aligned.
At current market prices on Tuesday morning, Woolworths shares trade on a fully franked dividend yield of 3.1%. And Coles stock trades on a fully franked dividend yield of 2.9%.
Clearly then, if you could turn back the clock, Coles shares would be the ones to buy in FY 2025.
But as we near the end of the first quarter of FY 2026 and lack a time machine, which ASX 200 stock will deliver the best returns in the year ahead?
For some greater insight into that profitable question, we defer to Shaw and Partners' Jed Richards (courtesy of The Bull).
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Upside potential for Woolworths shares
Richards recently ran his slide rule over both Woolworths and Coles shares.
"Investors have punished the share price since the supermarket giant released its full year results," he said about Woolworths.
"The shares closed at $33.42 on August 26, the day before the results. The shares were trading at $27.59 on September 18," added Richards, who has a buy recommendation on Woolworths shares.
According to Richards:
We suggest investors buy the stock while sentiment is low and value is compelling. The stock is currently out of favour, so it offers a rare entry point into a high-quality defensive business with strong brand loyalty.
He concluded, "Company earnings are resilient, supported by essential consumer spending. In our view, Woolworths presents upside potential for portfolios seeking stability and recovery."
Time to take profits on Coles shares?
Turning to Coles shares, Richards noted, "The supermarket giant is a solid performer. The shares have risen from $18.47 on March 19 to trade at $23.77 on September 18."
Commenting on Coles' full-year results, he said:
The company generated group sales revenue of $44.352 billion in fiscal year 2025, up 3.6% on a normalised basis when compared to the prior corresponding period. The group announced a reported net profit after tax of $1.079 billion, an increase of 2.4% on a normalised basis.
But following that strong run higher, Richards has a sell recommendation on Coles shares.
According to Richards:
The share price appears stretched at these levels, particularly when compared to rival Woolworths. Coles has enjoyed a strong run, so we see limited upside at this stage of the cycle.
Richards concluded, "Investors may want to consider locking in some profits and investing in other opportunities with better long term potential."
