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J Sainsbury plc Is Cheap Right Now And I’m Buying

Often in business, it doesn’t matter so much what you do when things are going well, but what you do when things aren’t.

In other words, when the economy is performing well and the future looks rosy, it is arguably not so difficult to deliver growing profits. Therefore, the actions you take are perhaps not so crucial.

However, during challenging times, the decisions you make directly impact upon your market share and, ultimately, how much profit you make when things pick up. Indeed, they even impact whether you will still be around to see the good times.

So, I was interested to read that a recent review of the UK high street by former Iceland and Wickes chief executive, Bill Grimsey, said that more than one in eight shops could go out of business in the next three years.

The review added that almost half of retailers are under extreme financial pressure, with the high street struggling to cope with a significant fall in consumer demand. Moreover, the figure increased to just shy of 70% when talking about small retailers.

Furthermore, over 20,000 retailers across the UK have liabilities larger than their assets, which is rarely a major sign of encouragement.

So, how can private investors like me benefit from the above?

I think that one way is to invest in a company that is winning market share. Sainsbury’s (LSE: SBRY) (NASDAQOTH: JSAIY.US) continues to grab market share from rivals and has delivered a long line of quarterly increases in like-for-like sales.

Indeed, Sainsbury’s seems to have cashed in on customer demands to ‘live well for less’, with its marketing campaigns proving particularly successful. For instance, brand match was so popular that Tesco rolled out their own version, while Sainsbury’s continues to entice shoppers with its fuel vouchers and coupons.

In addition, Sainsbury’s currently offers a very attractive yield of 4.3%, with dividends per share having grown in each of the last four years.

Furthermore, shares seem to be good value; currently trading on a price-to-earnings (P/E) ratio of 12.2. This compares favourably to the FTSE 100 and consumer services industry group, which trade on P/Es of 15 and 17.1 respectively. With earnings expected to grow by 6% in each of the next two years, Sainsbury’s looks like a sound bet on UK retail.

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> Peter owns shares in Sainsbury’s. The Motley Fool owns shares in Tesco.