This morning, shares of Australia's leading supermarket operator and diversified retailer, Woolworths Limited (ASX: WOW), jumped more than 2%.
Despite falling more than 20% over the past year, the company's stock this morning bucked off recent weakness to trade as high as $29.22.
Already up 8% since the beginning of the financial year, Woolworths shares may now be recovering from a period of tax-loss selling leading up to June 30.
Indeed, many investors may have decided to sell their underperforming shares (such as Woolworths) to offset their taxable income, and could now be buying back in.
Is it a bargain?
There's undoubtedly less upside in Woolworths' valuation at $29 compared to when it traded around $26 in mid-to-late June. However, even at today's prices it does have appealing characteristics.
None more so perhaps than its juicy 4.8% fully franked dividend. Grossed-up for the franking credits, that's a comparable yield of 6.8% – try getting that from the bank.
Then – for the bulls – there's its expanding Masters business. Yes, Masters is unprofitable. But it has only been in existence for a handful of years, whereas Bunnings – owned by Wesfarmers Ltd (ASX: WES) – is more than 20 years old, so there may be significant long-term upside in Masters.
I recently conducted a thorough valuation of Woolworths shares which suggested fair value was around $28.65. That means, at $29, investors buying shares now wouldn't be getting a bargain – at least theoretically.
However, depending on your outlook for the grocery market, there may be a number of reasons to think Woolworths shares have more upside over the long term.
