I am looking at allocating 20% of my (longer-term) portfolio to these companies. What split would you go with? Why? Thanks.
I assume you mean Woolworths versus Wesfarmers. Both businesses have some great characteristics and while they operate (predominantly) in the same core business areas, they have slightly different risk characteristics. Woolworths is the more predictable business, but in this market, that predictibility comes at a price premium. Management believes (in the best case) that they could grow earnings at around 6%. The question becomes as the investor, 'Am I prepared to pay around 16x earnings for a business that managment believes will grow at 6%'. I'm not saying yes or no, but it is a consideration. In my own portfolio, I'd like add to my WOW holdings at 14x earnings (assuming no other structural issues). I have a feeling I'll be waiting a while - but you never know. Wesfarmers until recently, didn't interest me. That was primarily because I wasn't sure of their ability to turnaround Coles. Interestingly, they have far surpassed my expectations and I believe they have a good growth engine there. The well known problem was that it is widely believed that they paid too much for Coles. In essence, to get a mediocre business outcome, Coles needed to produce extraordinary individual outcome. Fortunately, it did. I wont delve into individual business unit performances, margins, price wars etc (I don't want to rob you of the joy of discovery) but in short, I'd be happy to hold both of these companies in equal allocations, but I'm not buying at current prices.
I perfer WOW, but as above, I'm also not buying at this price. I was lucky enough to increase my position in WOW recently when it fell below $24, but as mentioned above I don't know if it's going to be the "growth" business it has been in the past. It's probably more of a "cash cow" these days which means you want to be buying it at a decent multiple.