Is the Coles share price still attractive after it surged to a record high today?

The Coles Group Ltd (ASX: COL) rallied to a record high today as it benefits from the COVID-19 outbreak. But is it too late to buy?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Coles Group Ltd (ASX: COL) rallied to a record high today as it's one of the lucky few to benefit from the COVID-19 outbreak. But is it too late to buy shares in the supermarket giant?

The Coles share price gained 0.3% to $17.96 on Tuesday while the Woolworths Group Ltd (ASX: WOW) share price eased 0.2% to $38.41 and the Metcash Limited (ASX: MTS) ended flat at $2.77.

Triple COVID-19 benefit

Shares in all three stocks held up reasonably well through the coronavirus pandemic as panic buying of groceries amid the lockdown lifted sales.

But there's two other benefits. Discounts given at the supermarkets started drying up as they didn't feel the need to tempt customers to shop with price promotions during the frenzy.

This also meant that the market remained rational as the supermarkets didn't have to aggressively compete against each other.

Grocery price inflation easing

The result is borne out in grocery prices. Inflation at Coles and Woolies jumped around 3.5% year-on-year in the June quarter compared with 1.8% in the previous quarter.

Greater volume and rising prices are great news for supermarket earnings, although UBS warns that the inflation momentum is easing, particularly for dry goods.

"Inflation post-COVID-19 panic buying remains supportive of a rational market; promotional intensity is broadly easing; and range continues to grow as retailers aim to differentiate," said UBS.

"That said, easing dry-goods inflation into Jun-20 and supplier expectations suggest inflation tailwinds are likely to slow moving forward.

"By retailer, relative inflation at Coles is lower vs. [Woolworths]."

Coles share price vs. Woolworths share price

While the broker is upbeat on the sector, it rates Woolworths and Metcash a "buy", and Coles as "neutral".

Industry feedback suggests that Woolies is beating Coles and the broker likes the former for its top-line outperformance and long-term growth opportunities. It also thinks Metcash is cheap.

Foolish takeaway

Given the increasing risk of another COVID-19 outbreak in New South Wales and the second shutdown of the Victorian economy, I too think the sector is an attractive safe harbour and have a slight preference for Woolworths.

This is largely because the Coles share price has outperformed with a 21% gain since the start of calendar 2020 compared to an 11% loss by the S&P/ASX 200 Index (Index:^AXJO).

In contrast, Woolies only managed a 6% gain even though management has a better track record than Coles, in my view.

Having said that, I don't think it's a bad idea to buy both stocks. As I've repeated a number of times, valuation alone isn't the reason to buy or sell ASX shares in this highly unpredictable environment.

Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Record Highs

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

Fresh high of $192: Here's how many records CBA shares have hit in 2025

CBA's record count for 2025 is getting ridiculous.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Record Highs

Breaking: The ASX 200 just hit a new all-time high

Australian shares have exploded 16.8% higher in two months.

Read more »

An excited man stretches his arms out above his head as he reaches a mountain peak.
Record Highs

Breaking: CBA shares hit a new record of $180

CBA shares can't possibly keep rising can they?

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

CBA shares hit a new $176 record high. Too late to buy?

What can stop this bank now?

Read more »

Man raising both his arms in the air with a piggy bank on his lap, symbolising a record high.
Bank Shares

CBA shares reach new all time high after 4% surge

CBA shares have done it again.

Read more »

Rising gold share price represented by a green arrow on piles of gold block.
Record Highs

This ASX 200 gold stock just surged to new all-time highs! Here's why

Investors just sent the ASX 200 gold miner rocketing to new record highs. But why?

Read more »

Happy couple doing grocery shopping together.
Consumer Staples & Discretionary Shares

The Coles share price just hit a new all-time high

Coles shares are making history today.

Read more »

Multi-ethnic people looking at camera sitting at public place screaming, shouting and feeling overjoyed about their windfall, good news or sports victory.
Share Market News

ASX 200 strikes new record high

ASX mining stocks and debuting Sigma-Chemist Warehouse shares are soaring today.

Read more »