Woolworths Limited (ASX: WOW) stock has copped an absolute hiding recently following the release of its first-half earnings report. After having traded as high as $34.71 prior to the results announcement, the stock has since retreated 13.4% to be trading at just $30.07.
Over the last 12 months, the stock has dropped 17.3%, which compares to the S&P/ASX 200 Index's (Index: ^AXJO) (ASX: XJO) 8% rise and rival Wesfarmers Ltd's (ASX: WES) 0.5% decline.
As one of Australia's biggest and most widely held companies, a drop of that calibre is certainly concerning. In fact, roughly $5 billion has been wiped from Woolworths' market value over the last 12 days, leaving a vast number of investors sporting battered and bruised portfolios.
However, the stock's recent decline presents long-term investors with an incredible opportunity to buy. Here are five key reasons why…
- Long-term growth. Woolworths cut its full-year earnings guidance, recognising the need to invest in its supermarket division to drive long-term shareholder value. While earnings will certainly take a hit in the near-term as a result, investors could reap the rewards in the coming years through cost savings and improved sales.
- Defensive. The Australian economy isn't in the greatest shape right now and economic uncertainty is certainly on the rise. No matter what the state of the economy however, people still need to eat meaning that sales from its primary supermarket division should hold up well even in the worst of times.
- Scale. Woolworths commands a dominant position in Australia's $85 billion grocery industry, giving it significant negotiating power with suppliers. While the company has actually been scrutinised for this in the past (for example, the pressure it puts on Coca-Cola Amatil Ltd (ASX: CCL) to lower its prices), it's certainly an enviable advantage to have.
- Quality. Although it has struggled in recent times, Woolworths is still one of Australia's highest quality corporations. Over the last two decades, the stock has delivered enormous returns to shareholders and I expect the same will continue for decades to come.
- Dividends. Aside from the possibility of strong capital gains over the coming years, Woolworths is also offering a fantastic (and growing) dividend. Right now, the stock is expected to yield 4.6% this financial year, fully franked of course!
