How Tesco PLC Can Pay Off Your Mortgage

Tesco PLC (LON: TSCO) has potential. And it could help pay off your mortgage. Here’s how.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

TescoIt’s been an extremely disappointing three years for investors in Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), with the UK’s biggest retailer seeing its share price fall by 30% while at the same time the FTSE 100 has risen by 14%. That’s a considerable amount of underperformance and it seemed as though ‘enough was enough’ this week when Chief Executive, Philip Clarke, stood down.

His replacement, Dave Lewis (a senior director at Unilever) will inherit a company with significant short-term problems, but with vast long-term potential to deliver profitability growth and add value for shareholders. Here’s why.

Strategy Is Key

Clearly, a company’s strategy is always crucial, but with Tesco it appears to have added importance at present. That’s because its strategy has been exceptionally poor in recent years and it needs to make wholesale changes in order to improve the top and bottom lines.

Indeed, Tesco has adopted a policy of cutting prices to such an extent that its margins have been slashed, with this strategy so far being unsuccessful in attracting core customers who have defected to discount retailers such as Aldi and Lidl. It has also lost higher end shoppers that were previously serviced by Tesco’s higher price point goods (such as its Finest range) as the company is now seen as little more than a slightly more expensive Aldi or Lidl, as a result of its obsession with price.

Tesco needs to copy its more successful competitors, such as J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US). It has experienced disappointing figures in recent months, but prior to that had been weathering the challenging trading conditions of the UK supermarket surprisingly well. That’s because it remained competitive on price (via its price match coupon offer, for example), but still focused on emphasising the quality of its goods. This helped it to keep core customers and, ultimately, deliver better profit figures than Tesco.

Looking Ahead

With a change in strategy, Tesco can make a strong comeback. Certainly, the short term is likely to continue to be a challenging time for investors, but as a long term investment it remains highly attractive. For instance, it trades on a price to earnings (P/E) ratio of just 10.4 (versus 13.7 for the FTSE 100) and yields a very impressive 5.1%. This shows that Tesco has the potential for a significant upward rerating and that, in the meantime, it remains a great income play. Both of these attributes make it a sound long term investment that could make a positive contribution to your mortgage repayments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Sainsbury (J) and Tesco. The Motley Fool owns shares of Tesco.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »