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Wesfarmers is a diversified Australian conglomerate with interests in retail, chemicals, fertilisers, industrial and safety products. Listed on the ASX, Wesfarmers is well-known for its strategic acquisitions and long-term growth prospects.

So, is it a good investment? Are there any potential risks? What investment strategy should you consider for this stock? This article will address these questions and more.

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3. heinäk. 2024

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Stock Analysis: Wesfarmers, a Conglomerate Sector

Wesfarmers Limited, based in Perth, Western Australia, is one of the largest conglomerates in Australia. It operates a diverse range of businesses, including retail, chemicals, fertilisers, industrial and safety products, and coal. Listed on the ASX, Wesfarmers is known for its strong financial performance and strategic acquisitions.

Key Segments for Wesfarmers

Wesfarmers' operations span several significant segments within the Australian economy:

  • Retail: Wesfarmers owns and operates well-known retail brands such as Bunnings Warehouse, Kmart, Target, and Officeworks. These brands are leaders in their respective markets, offering a wide range of products to Australian consumers.

  • Industrial and Safety: Wesfarmers Industrial and Safety provides industrial supplies, safety products, and services across Australia and New Zealand, supporting various industries including mining, construction, and manufacturing.

  • Chemicals, Energy & Fertilisers: This division produces and supplies chemicals, energy, and fertilisers to a range of industries, contributing to the agricultural and industrial sectors.

  • Resources: Wesfarmers operates coal mines and engages in resource management, providing energy solutions and contributing to Australia's resource exports.

  • Other Investments: Wesfarmers also has investments in various other sectors, including financial services and property, enhancing its diversified portfolio.

Wesfarmers' Client Base

Analyzing Wesfarmers’ client base provides insight into its market reach and stability. Wesfarmers serves a broad range of clients across multiple sectors, including retail consumers, industrial companies, and agricultural businesses. Some notable client segments include:

  • Retail Consumers: Through its retail brands, Wesfarmers reaches millions of Australian households, providing essential goods and services.

  • Industrial Companies: Wesfarmers supplies industrial and safety products to a wide range of businesses, supporting the operational needs of various industries.

  • Agricultural Businesses: The Chemicals, Energy & Fertilisers division supports the agricultural sector with essential products for farming and crop production.

  • Export Markets: Wesfarmers' coal and resource operations serve international markets, contributing to Australia's export economy.

Challenges and Risks

Despite its strong market position, Wesfarmers faces several challenges and risks:

  • Economic Cycles: Wesfarmers' performance is influenced by economic cycles, with retail and industrial segments particularly sensitive to changes in consumer spending and industrial activity.

  • Regulatory Environment: Changes in regulations can impact Wesfarmers' operations, particularly in areas such as environmental standards and labour laws.

  • Competition: Wesfarmers faces intense competition across its various business segments, requiring continuous innovation and strategic management to maintain its market position.

  • Resource Prices: Fluctuations in commodity prices, particularly for coal, can impact the profitability of Wesfarmers' resources division.

So, Is Wesfarmers a Good Investment?

Based on the information presented, Wesfarmers Limited is a diversified conglomerate with strong market positions across various sectors. Its broad portfolio and strategic acquisitions contribute to its resilience and growth potential.

However, potential investors should consider the risks associated with economic cycles, regulatory changes, competition, and resource price volatility. Thorough research and a clear understanding of the Australian market and economic conditions are essential for making informed investment decisions.

Overview of the Conglomerate Industry

The conglomerate industry comprises companies that operate across multiple, often unrelated, business sectors. Conglomerates benefit from diversified income streams, reducing risk and enhancing stability. These companies leverage their size, resources, and market reach to achieve economies of scale and strategic advantages.

Industry Trends and Growth Factors

Investing in the conglomerate sector requires an understanding of the broader industry trends and factors driving growth. Here are some key trends and growth factors in the conglomerate industry:

  • Economic Diversification: Conglomerates often diversify across various sectors, mitigating risks associated with downturns in any single industry.

  • Strategic Acquisitions: Many conglomerates grow through strategic acquisitions, expanding their market presence and entering new business areas.

  • Operational Synergies: Conglomerates leverage operational synergies between their different business units, enhancing efficiency and reducing costs.

  • Global Expansion: Many conglomerates pursue global expansion strategies, tapping into new markets and increasing their international footprint.

  • Innovation and Technology: Investment in innovation and technology drives growth and competitiveness in the conglomerate sector, enabling companies to stay ahead in their respective markets.

  • Regulatory Changes: Changes in regulations can impact conglomerates, particularly those with exposure to multiple industries, requiring agility and compliance across diverse regulatory environments.

Alternative Assets to Wesfarmers

While Wesfarmers is a major player in the conglomerate sector, there are other investment options within the same industry. Investors can consider other conglomerate companies or exchange-traded funds (ETFs) that offer diversified exposure to the conglomerate sector.

Alternative Stocks to Consider

  • Woolworths Group (WOW): Woolworths Group is a major Australian retailer operating supermarkets, liquor stores, and other retail businesses.

  • Seven Group Holdings (SVW): Seven Group Holdings operates across industrial services, media, and energy sectors, providing diversified exposure to the Australian economy.

  • Harvey Norman Holdings (HVN): Harvey Norman is a leading retailer of furniture, bedding, computers, and electrical appliances, with a strong presence in Australia and New Zealand.

  • Metcash Limited (MTS): Metcash is a wholesale distribution and marketing company specializing in grocery, liquor, and hardware supplies to independent retailers.

  • Brickworks Limited (BKW): Brickworks is involved in property, investments, and building products, offering exposure to Australia's construction and property sectors.

  • Worley Limited (WOR): Worley provides engineering and consulting services to the resources and energy sectors, with a global footprint and diversified project portfolio.

  • Incitec Pivot Limited (IPL): Incitec Pivot manufactures and distributes fertilisers, industrial chemicals, and explosives, supporting Australia's agricultural and mining industries.

  • Orica Limited (ORI): Orica is a leading manufacturer of explosives and innovative blasting systems, servicing the mining, quarrying, and construction markets.

  • Qube Holdings (QUB): Qube provides integrated logistics solutions, including road and rail transport, warehousing, and port services, critical to Australia's supply chain.

Conglomerate-focused ETFs

Investors can also consider ETFs that provide exposure to a portfolio of conglomerate stocks. Here are some notable ETFs:

  • iShares Global Industrials ETF (EXI): EXI tracks the performance of the S&P Global 1200 Industrials Index, providing exposure to a broad range of industrial and conglomerate companies globally.

  • SPDR S&P International Industrial Sector ETF (IPN): IPN offers diversified exposure to industrial and conglomerate companies outside the United States.

  • Vanguard Industrials ETF (VIS): VIS seeks to track the performance of the MSCI US Investable Market Industrials 25/50 Index, providing exposure to industrial and conglomerate companies in the US.

  • iShares MSCI Global Multifactor ETF (ACWF): ACWF offers exposure to global companies across various sectors, including industrials and conglomerates, based on multifactor analysis.

These ETFs offer a convenient way to gain diversified exposure to the conglomerate sector, allowing investors to mitigate the risk associated with individual stocks while benefiting from the overall growth of the industry.

While there are other investment alternatives, we only mention those most directly related to the asset we are analyzing.

Keep track of the markets and what they mean for you.

Tips for Finding a Good Broker for Stock Investing

Choosing the right broker is crucial as it allows you to invest in financial markets.

A good broker facilitates transactions and provides the necessary tools, resources, and support to make informed investment decisions. Before this section, we present a broker's ranking that discusses the type of broker you require to invest in this asset.

Here are some tips to help you find the broker that best suits your needs:

  1. Regulation and Security: Ensure the broker is registered with major financial regulatory bodies. Additionally, verify if they are members of investor protection schemes that safeguard your funds.

  2. Commissions and Fees: Compare the commissions for buying and selling stocks, i.e., the costs. Some brokers offer "commission-free trading," which can benefit frequent traders; however, these entities make money by charging you other fees. Consider additional fees such as account maintenance, inactivity, and withdrawal fees.

  3. Trading Platform and Tools: Evaluate the usability, speed, and reliability of the trading platform where you will invest. A good platform should be intuitive and offer real-time data, charting tools, and technical analysis indicators.

  4. Range of Investment Options: Ensure the broker provides access to a wide range of stocks in various global markets. This is particularly important if you plan to diversify your investments internationally. Check if they offer other investment products, such as ETFs, mutual funds, bonds, and options, which can provide additional diversification opportunities.

  5. Customer Service and Support: Test the broker's customer service by contacting them with questions before opening an account. Evaluate their responsiveness, professionalism, and availability. The last thing you want is to have a problem, and no one responds. We're talking about your capital.

  6. Account Types and Minimums: Review the types of accounts offered, such as individual brokerage accounts, retirement accounts, and margin accounts. Check if there are minimum deposit requirements and ensure they align with your financial capabilities.

  7. Speed and Quality of Execution: Investigate the broker's order execution speed and quality, i.e., how long it takes the broker to process your buy and sell orders. Fast and accurate execution is crucial, especially for active traders.

The stock trades on the Australian Securities Exchange, one of the most prominent stock exchanges in the Asia-Pacific region.

Founded in 1987, the ASX is known for its advanced technology and robust trading infrastructure, hosting some of Australia's leading companies.

The stock trades on the Australian Securities Exchange, one of the most prominent stock exchanges in the Asia-Pacific region.

Founded in 1987, the ASX is known for its advanced technology and robust trading infrastructure, hosting some of Australia's leading companies.

About the ASX Stock Exchange

As we've mentioned, the stock trades on the Australian Securities Exchange (ASX), one of the most prominent stock exchanges in the Asia-Pacific region.

Founded in 1987, the ASX is known for its advanced technology and robust trading infrastructure, hosting some of Australia's leading companies such as BHP, Commonwealth Bank, and CSL.

With a high volume of trades, the ASX offers significant liquidity, making it easier for investors to buy and sell shares without causing major price fluctuations.

The ASX is synonymous with innovation and growth, providing a platform for established companies and emerging businesses alike.

Trading on the ASX

Stocks listed on the ASX are traded electronically through a network of computers rather than on a physical trading floor. This electronic system offers several advantages, including faster transaction times and greater transparency. Here's how stock trading works on the ASX:

  1. Listing and Market Makers: Companies must meet stringent requirements to list their stocks on the ASX. Once listed, market makers—financial firms responsible for providing liquidity—facilitate trading by posting bids and asking stock prices.

  2. Order Placement: Investors place buy or sell orders through their brokers. These orders are then sent to the ASX network, which matches them with corresponding buy or sell orders.

  3. Trade Execution: The trade is executed electronically when a match is found. The ASX system ensures that trades are processed quickly, often in milliseconds, ensuring efficient price discovery and execution.

  4. Regulation and Oversight: The ASX operates under the regulation of the Australian Securities and Investments Commission (ASIC) and adheres to strict rules to ensure fair trading practices and market integrity.

  5. Trading Hours: The ASX operates during regular trading hours from 10:00 AM to 4:00 PM AEST, with pre-market and after-market trading sessions available for extended trading opportunities.

Specific Strategies for Investing in Stocks

We've already gone over the stock itself, why you need a broker, and the stock exchange where it's listed. Now, let's dive into how you should invest. What types of investment strategies are out there?

The answer to this depends on your investment goals, your time horizon (whether you're looking to buy and sell quickly or hold for the long term), and the capital you have available.

Here are some of the most common investment strategies, ranging from long-term to short-term.

Buy and Hold Strategy

  • Horizon: Long Term

  • General Description: This strategy involves buying and holding stocks for an extended period, regardless of market volatility.

  • Objective: Benefit from the overall growth of the stock market and the compounding effect of reinvested dividends.

  • Tips: Select companies with solid fundamentals and a consistent performance history. Diversify across multiple sectors to spread risk. Be patient and avoid reacting to short-term market fluctuations.

Dividend Investing

  • Horizon: Long Term

  • General Description: Focus on stocks that pay regular dividends, providing a steady income stream and potential capital gains.

  • Objective: Generate passive income and benefit from the compounding effect of reinvested dividends.

  • Tips: Look for companies with a strong history of dividend payments and increases. Evaluate the dividend yield, payout ratio, and sustainability of the dividends. Consider using a Dividend Reinvestment Plan (DRIP) to reinvest dividends automatically.

Check out our ranking of the best apps for Dividend Investing.

Growth Investing

  • Horizon: Long Term

  • General Description: Invest in companies expected to grow at an above-average rate compared to other companies.

  • Objective: Achieve significant capital gains through stock price appreciation.

  • Tips: Focus on companies with strong earnings growth, innovative products, and a competitive advantage. Be prepared for higher volatility and the possibility of larger price swings. Conduct thorough research to identify emerging industries and market trends.

Index Investing

  • Horizon: Long Term

  • General Description: Invest in index funds or ETFs that track major stock market indices, such as the ASX 200, NASDAQ, or Dow Jones.

  • Objective: Achieve broad market exposure and benefit from the overall market growth with lower fees and risk.

  • Tips: Choose low-cost index funds or ETFs that offer diversification across multiple sectors. Use dollar-cost averaging to invest a fixed amount regularly, reducing the impact of market volatility. Rebalance your portfolio periodically to maintain the desired asset allocation.

Check out our ranking of the best apps for Index Trading.

Value Investing

  • Horizon: Medium Term

  • General Description: Based on fundamental analysis, identify undervalued stocks that are trading below their intrinsic value.

  • Objective: Benefit from the market's eventual recognition of the stock's true value.

  • Tips: Use metrics such as the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) analysis to assess value. Look for solid finances, good management, and a competitive advantage. Be patient, as it may take time for the market to recognize the stock's true value.

Momentum Investing

  • Horizon: Medium/Short Term

  • General Description: Invest in stocks that show strong upward momentum, expecting the trend to continue.

  • Objective: Capture gains from stocks that are trending upwards.

  • Tips: Identify stocks with strong recent performance and high trading volumes. Use momentum indicators like moving averages and RSI to confirm trends. Be prepared to exit positions quickly if momentum reverses, using stop-loss orders to limit potential losses.

Contrarian Investing

  • Horizon: Medium/Short Term

  • General Description: Take positions against the prevailing market sentiment, buying when others are selling and vice versa.

  • Objective: Benefit from market overreactions and mispricing.

  • Tips: Look for fundamentally strong stocks that have been oversold due to negative news or market sentiment. Be patient and willing to hold positions until market sentiment reverses. Conduct a thorough fundamental analysis to ensure the stock's underlying value supports your investment thesis.

Swing Trading

  • Horizon: Short Term

  • General Description: A short-term strategy involves holding stocks for a few days to weeks and capitalizing on expected price movements.

  • Objective: Gain from short to medium-term price fluctuations using technical analysis.

  • Tips: Use technical indicators like moving averages, Relative Strength Index (RSI), and MACD to identify entry and exit points. Set stop-loss orders to manage risk and protect against significant losses. Stay updated on market news and events that may impact stock prices.

Day Trading

  • Horizon: Short Term

  • General Description: This strategy involves closing trades within the same day based on technical analysis and intraday market movements.

  • Objective: Profit from daily price movements.

  • Tips: You need a solid understanding of technical analysis and access to real-time trading tools. Use strategies such as scalping and breakout trading. Set stop-loss orders to manage risk and limit losses. Stay updated on news and events that may affect stock prices during the day.

Check out our ranking of the best apps for Day Trading.

News Trading

  • Horizon: Short Term

  • General Description: Strategy that involves taking positions based on the market's reaction to significant news and economic events.

  • Objective: Capitalize on volatility and rapid price movements from news and significant events.

  • Tips: Stay informed about relevant news and economic events. Use an economic calendar to anticipate key events. Set stop-loss orders to protect against adverse market movements. Be quick and decisive in executing your trades.

Key Findings

  • Investing in stocks requires a deep understanding of both the specific company and the industry in which it operates.

  • Evaluating available alternatives, such as other stocks within the same sector and different types of alternative assets, is essential for building a solid and diversified portfolio.

  • Choosing a good broker and adopting investment strategies that align with your objectives and time horizon are fundamental steps to maximize your returns and manage risk.

  • Choose the right strategy: A long-term strategy like buy and hold differs from a short-term strategy like day trading.

  • Finally, staying updated with market trends and being willing to adjust your strategy as needed will help you navigate the dynamic world of investing.

  • Also, consider the impact of the Australian dollar's exchange rate and the broader Australian economy on your investments. These factors can significantly influence stock prices and overall market performance.

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