Both Coles Group Ltd (ASX: COL) shares and Woolworths Group Ltd (ASX: WOW) shares have been something of a beacon of stability in 2020 so far. With the coronavirus pandemic upending the world this year, it has been a strange and often scary period in which to invest in ASX shares.
Both Coles and Woolworths are consumer staples giants, with customers flocking to the supermarkets like never before in the first few months of the pandemic. This has lead to ASX investors treating both supermarket chains like islands of capital stability in an ocean of uncertainty.
And fair enough too. Both Coles and Woolworths are among the ever-shrinking pool of ASX 50 companies that are unlikely to cut their dividend payments to shareholders in 2020 and beyond for one. Their defensive, consumer staples nature for another is almost certain to keep the companies healthy and profitable under any future circumstances, whatever they may be. We all need to eat and buy household essentials after all.
But which of these 2 Australian icons is the better buy today? Well, that's what we'll be trying to answer.
An age-old question: Coles or Woolies?
Unlike Coles or Woolies shoppers, who might tend to choose whichever supermarket is closest, we as investors can take a holistic view of these companies. So, let's start with some statistics (always fun).
On market capitalisation, Woolworths is the biggest player in the game – $49.27 billion on current prices, compared to Coles' $24.24 billion. This does reflect Woolworths' ownership of the Big W discount chain, as well as the ALH Hotels Group and the Endeavour Drinks business (which includes the bottle shop chains Dan Murphy's and BWS). In contrast, Coles is more of a one-trick pony, owning just the Coles network of stores, as well as some bottle shop chains of its own (including First Choice Liquor and Liquorland).
But Woolworths still has a larger presence in the overall grocery market. According to a recent Roy Morgan report, Woolworths maintained a 32.9% share of the market over the course of last year, which compares favourably with the 26.6% share of the grocery market Coles commanded. According to the report, this was a 0.7% drop for Woolworths over the previous year and a 1.4% drop for Coles.
What about the Coles and Woolworths share prices?
At the time of writing, Woolworths is trading for $39.01 and Coles for $18.17. Incidentally, the latter is just a touch off Coles' all-time high of $18.32 that the company recently reset.
These share prices give Woolworths a price-to-earnings (P/E) ratio of 19.42 and a trailing dividend yield of 2.64%. In contrast, Coles is currently trading on a P/E ratio of 20.46 and offers a trailing dividend yield of 2.31%.
So here we can see the market is pricing Coles at a slight premium to Woolies today.
Foolish takeaway
I would say neither Coles nor Woolies is a screaming bargain today. Investors have clearly kept up both companies' share prices, probably to reflect a 'stability' premium they now offer in this uncertain world.
If I had to choose one company, I think I would go with Woolworths. It's currently offering a greater market share than Coles, has a cheaper price (relative to earnings) and a higher starting dividend yield. It's also a more diversified company. As such, I think Woolies wins the supermarket wars, for today at least.
