Deceiving You With Charts
Wesfarmers (WES) - If you look at a chart of Wesfarmers over the last year you might get a little bit annoyed as a large Fund manager that you’ve missed this quite significant looking rally. If you don’t hold the big stocks that go up you underperform.
Until you look at this chart below. This chart shows the performance of WES over the last 5 years showing the rally in the last 6 months (blue line) and over the top of that is the performance of WES relative to the ASX 200 (red line) over the last 5 years. Turns out it’s been a bit of a dog despite the recent rally and has been underperforming for the last 2 years. Turns out you didn’t need to hold it has a big institutional fund manager after all and you have missed nothing as a private investor compared to what has been on offer in the market generally.
Then let’s look at this chart. This is a chart of the Wesfarmers with “zero” on the scale. This is a common error when looking at boring stocks like infrastructure and utilities, and a lot of the very big stocks. If you allow the chart to auto adjust the scale all stocks look like they are ripping up and down. It is not until you put zero on the scale that you realise this is a no growth stock, stuck in a very tight range, and that if it’s growth you’re after you need to look elsewhere. The only people this chart would appeal to are investors who want no “sex” and a high yield. This is the same sort of share price chart over the long-term as you would get in a term deposit. Flatlining. Its a listed term despoit with a 7.3% yield...if you can handle a 15% trading range over the long term.
Here are the numbers. It turns out that WES is an income stock with a 7.3% yield which is hundred percent franked. They have an 89% payout ratio. There is 4% dividend growth, a reliable 12% ROE with steady 4% revenue growth. Basically yes, for all the press commentary and ups and downs this is a very boring stock. That is reflected in the fact that the stock is always trading very close to the average broker target price. Even the brokers are evenly split on buy and sell recommendations. The bottom line is that this is for income only and if you are buying it you should probably look to buy it at the bottom of the range ($40) not the top ($45). At the moment we are 4% from the year high. It’s the sort of stock I would only add for income at the right price which will probably mean the market has to fall over. It goes on the “no growth income only” but quality watch list, to be bought at the right time.