Better ASX 200 retail stock to buy now: JB Hi-Fi or Wesfarmers shares?

Which retailers can cope with Australians willing to spend less after 12 interest rate hikes?

| 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

There is much consternation at the moment about ASX shares in the retail industry.

It's perfectly understandable that stock prices for consumer discretionary businesses have plunged. Australians are dealing with 12 interest rate rises in just over a year, and don't have much spare cash to spend.

But does this mean ASX retail shares now have upside as the rate hikes come to a halt?

Let's take a look at two of the most prominent players in this space: Wesfarmers Ltd (ASX: WES) and JB Hi-Fi Limited (ASX: JBH).

'The least discretionary discretionary'

Wilsons equity strategist Rob Crookston last week called Wesfarmers "the least discretionary discretionary".

"Wesfarmers has a well-established and trusted brand portfolio, including popular retail chains such as Bunnings Warehouse, Kmart, and Officeworks," he said.

"These brands have a strong customer base and tend to perform well regardless of the economic climate."

Created with Highcharts 11.4.3Wesfarmers PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

IML portfolio manager Michael O'Neill especially loves the hardware chain Bunnings.

"Bunnings is a very high-quality franchise which continues to go from strength to strength, generating strong, and increasing, cash flow," he said.

"It is dominant in its industry and has become a part of popular culture and embedded in its communities with its DIY mentality, motivated staff and beloved sausage sizzles."

Both experts are thus keen on the growth potential and income production of Wesfarmers shares.

The stock's dividend yield currently stands at a fully franked 3.80% after the share price tumbled 6% since 26 April.

The income king that 'just paid out the largest interim dividend in its history'

JB Hi-Fi shares have also plunged in recent times, with its share price down 6.8% since 19 May.

But the amazing surprise is that it's paying out a whopping 8.09% dividend yield, which is fully franked, no less.

The Motley Fool's Sebastian Bowen is a fan, saying earlier this month that the market is "being too hard" on the electronics retailer.

Created with Highcharts 11.4.3Jb Hi-Fi PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

"The company's recent financial results show it is a resilient business," he said.

"Just last month, this electronics retailer told investors that Australian sales were up by almost 39% against its pre-COVID levels. And in FY2022, the company posted a record after-tax profit of $545 million, which was up 7.7% over FY21's numbers."

He noted that JB HiFi's price-to-earnings ratio is hovering just above 8.

"JB has just paid out the largest interim dividend in its history," said Bowen.

"Back in March, investors were treated to a payment of $1.97 per share, a big rise from last year's interim dividend of $1.63."

The verdict

Although JB Hi-Fi shares are extremely tempting in light of the company's huge dividend yield, I favour Wesfarmers as a long-term buy.

The products it sells through retail brands like Bunnings and Kmart feel like they are more essential everyday items that could better withstand an economic downturn. 

Cash-strapped Australians will delay the purchase of their next smartphone or big-screen television but will still need clothes for their kids and screws to maintain their house.

Wesfarmers, as a conglomerate, is also better diversified, with significant interests outside the retail industry, such as mining.

According to CMC Markets, four out of 13 analysts currently rate Wesfarmers as a buy. Three out of 14 analysts recommend JB Hi-Fi as a buy at the moment.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

A block of cheese with grated cheese on top.
Consumer Staples & Discretionary Shares

Macquarie expects 20% upside for this ASX All Ords consumer staples stock

This week, Macquarie initiated coverage on Bega Cheese with an outperform rating.

Read more »

Man with a hand on his head looks at a red stock market chart showing a falling share price.
Consumer Staples & Discretionary Shares

Why are Cettire shares crashing 27% today?

Things aren't looking good for this online luxury products retailer.

Read more »

Young lady in JB Hi-Fi electronics store checking out laptops for sale
Consumer Staples & Discretionary Shares

Does Macquarie prefer Harvey Norman or JB Hi-Fi shares?

Here’s what this broker has to say about these consumer discretionary companies. 

Read more »

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

What does Macquarie think Woolworths and Coles shares are worth?

Should investors be interested in supermarket stocks?

Read more »

A man looking at his laptop and thinking.
Broker Notes

Up 17% in 2025, how much more upside does Macquarie tip for Metcash shares?

Following Tuesday’s merger and earnings news, Macquarie changed its rating for Metcash shares.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Consumer Staples & Discretionary Shares

$10,000 invested in these consumer discretionary shares 5 years ago is now worth…

These ASX 200 companies have given investors big returns.

Read more »

Couple looking very happy while shopping at a home improvement store.
Dividend Investing

Focused on pasive income? Check out this defensive ASX 200 dividend stock

A leading expert says this quality ASX 200 dividend stock remains ‘undervalued’.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Consumer Staples & Discretionary Shares

Guess which ASX 200 share is pushing higher on guidance update

This wholesaler is expecting earnings ahead of consensus estimates in FY 2025.

Read more »