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Are WOW and WES bargains after this sell-off?

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Are WOW and WES bargains after this sell-off?

Hi James WOW and WES seemed to have been indiscriminately sold off with the rest of retail following poor results from TGT and Walmart in the US earlier this week. The sell off seems to have done some technical damage on the chart, but do you see any fundamental issues in the nature of the business and future prospects for WOW and WES going forward based on what we saw in the US to justify such a sell off? Does the sell off make them more attractive from a valuation perspective or is caution warranted? Many thanks

Answer

Hi Alex,

We do like both WOW and WES into this weeks sell-off post the Target downgrade, plus we are considering Target (TGT US) itself! In terms of them being cheap, both are still marginally expensive versus their historical averages. Wesfarmers is harder to judge given they spun out lower growth Coles and now Bunnings is a higher proportion of their business so they should trade on a ‘growthier’ multiple, however Woolworths is still not ‘dirt cheap’ trading on an Est PE of 25x versus it’s longer term average of 21x.

In todays market stocks are often taking a while to turn around after bad news, when its from a crowded trade it can often take longer i.e. investors have been backing defensive stocks in 2022. Hence MM are happy holders of WOW in our Growth Portfolio & WES  in our Income Portfolio but are unlikely to average our exposure unless we see further weakness.

 

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Wesfarmers (WES)
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