The ASX has taken a strong, definite turn upwards over the past two weeks. The S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) has gained 9.6% since mid-January. That's close to the 11% long-term average ASX return for a whole year!
However exciting that may be, intelligent investors will keep concentrating on picking up quality companies with a reasonable margin of safety in the price. Warren Buffett, the world's third richest person and investing great, said about successful investing:
"Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard."
That's why I would keep my eyes on Wesfarmers Ltd (ASX: WES). The conglomerate has been busy with acquisitions and sales over the past year. After selling off its two insurance businesses, it bought up the Workwear Group of Pacific Brands Limited (ASX: PBG) which owns household names like Hard Yakka, KingGee and Stubbies.
Wesfarmers has a number of different businesses outside of its well-known retail brands of Coles supermarkets, Bunnings Warehouse, Target, Officeworks and Kmart. To really drive its growth, though, it would require big acquisitions to make an impact on its huge revenue and earnings. That's why the retail giant is making a move into financial services.
Joint venture to offer credit cards, lending
In June last year, Wesfarmers entered a joint venture with GE Capital, a huge US finance firm, to offer credit cards, personal finance products and eventually even small personal loans to its store customers. This move is similar to what large US retailers like Walmart and Costco already do.
Financial services acquisition possibility
Some market watchers also speculate Wesfarmers may be getting ready for a big acquisition in financial services to take the lead in its ongoing rivalry with Woolworths Limited (ASX: WOW) to be the biggest retailer in Australia.
Investors should keep an eye on the big retailer for any signs of such a move because it potentially could drive the stock higher.
Wesfarmers pays a 4.5% fully franked yield and trades at 21 times forward earnings estimates.
