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How I Rate J Sainsbury plc As A ‘Buy And Forget’ Share

Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.

Today I’m looking at Sainsbury’s (LSE: SBRY) (NASDAQOTH JSAIY.US)

What is the sustainable competitive advantage?

Sainsbury’s recently reported its 34th consecutive quarter of sales growth, a highly respectable record, considering that peers Tesco and Morrisons have both seen their sales fall over the same period.

Indeed, according to data released last month by market research firm Kantar, Sainsbury’s was the only grocer out of the country’s big four that saw its market share grow during the 12 weeks to Aug 18th

Still, Sainsbury’s only holds a 16.5% share of the UK retail market, slightly more than half of Tesco’s 30.2% share.

In an industry such as retail, where bigger is better, Sainsbury’s small size compared to peer Tesco is the company’s biggest disadvantage. Moreover, it’s hard to see how Sainsbury’s will be able to grow further without undertaking a cut-throat price war.

Indeed, it would appear that the UK retail market is already saturated as Tesco recently wrote down the value of its land bank, admitting that it would not be profitable to build additional stores in an already saturated market.

In addition, Sainsbury’s net profit margins are almost exactly the same of peer Tesco as both companies lack any real ability to set prices in the highly competitive industry.

However, with a 16.5% share of the UK’s highly defensive £31.7 billion grocery market, Sainsbury’s is hardly struggling for sales.

Company’s long-term outlook?

Over the long-term, Sainsbury’s position as the one of the UK’s leading retails firms should mean that the company has a relatively stable outlook.

Nonetheless, as the retail market here in the UK is already overcrowded and Sainsbury’s lacks a significant competitive advantage, it is likely that growth will be slow.

However, there are rumours that Sainsbury’s could be looking to expand into China but as of yet, there is no timetable for this expansion.

Still, Sainsbury’s is making progress in other markets with online sales up 16% during the first half of this year.

Foolish summary

The best buy and forget shares are usually sector leaders, which Sainsbury’s is not. That said, the company’s solid position in the UK’s highly defensive retail sector gives me confidence in Sainsbury’s long-term potential.

So overall, I rate Sainsbury’s as a good share to buy and forget. 

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In the meantime, please stay tuned for my next FTSE 100 verdict.

>  Rupert does not own any share mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.