Great price for quality stock
I have been a holder of Woolies* for almost a decade and it has been a great stock, but the last year has seen it down almost 40% after trading above R100 for a while.
The price at R100 was expensive and the tough consumer market, coupled with the Australian adventure, did not justify the price. But the current price in the mid-6 000c offers great value with a forward price-to-earnings ratio (P/E) of below 13 times and forward dividend yield of over 5%.
Conditions remain tough for local retailers but David Jones in Australia will start to kick in strongly and local conditions will improve in time, and a low double-digit P/E is a great price for buying a quality retail stock.
The risk here is its clothing retail division. We’ve seen other local clothing stores having a very tough time in the face of international competition and I am of the view that the international retailers have taken market share they will likely keep. But food is big in Woolies’ life and here it is the market leader among the higher LSM groups.
*The writer owns shares in Woolworths.