Is It Time To Buy Tesco PLC, J Sainsbury plc & Wm. Morrison Supermarkets plc?

Is it time to catch the falling knives of Tesco PLC (LON:TSCO), J Sainsbury plc (LON:SBRY) & Wm. Morrison Supermarkets plc (LON:MRW)?

| 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.

A few years ago, the rise of the supermarkets seemed unstoppable. The share prices of companies such as Tesco (LSE: TSCO), Morrisons (LSE: MRW) and Sainsbury (LSE: SBRY) were rocketing skyward.

This was the reflection of a trend that had lasted many decades: a trend away from corner shops, department stores and the high street and towards the supermarkets. The supermarket seemed to represent the ideal combination of choice, value and convenience.

Welcome to the world of the long tail

In a way, the rise of the supermarkets reflected the post-war growth in car ownership and in household wealth. This was the age when bigger was better, when retailers piled it high and sold it cheap.

But, in this century, the emerging trend has been the world of the long tail. This is a world where the weekly visit to the local supermarket has turned into a seamless retail experience, from the supermarket, the city-centre minimart, the computer website, and the tablet and smartphone app. This is a world of almost endless choice, where there are so many competitors that to win a supermarket has to offer an exceptional shopping experience. Pile it high and sell it cheap is so last century.

Hit by this flurry of competition and cultural and technological change, the supermarkets have not known quite how to react. And their share prices have taken a tumble.

TescoFrom a high of 490p in 2007, Tesco’s share price has fallen to a low of 243p recently. From a high of 326p in 2011, Morrison’s share price is now down to 177p. Likewise, Sainsbury has fallen from 410p to 306p. Investing in the supermarkets at the moment seems to be like trying to catch a falling knife.

But the supermarkets now look cheap

But, wait a minute. Amidst all this doom and gloom, let’s take a snapshot of where the supermarkets stand now, in terms of fundamentals. Tesco is on a P/E ratio of 10.5, with a dividend yield of 5.9. Morrisons is on a P/E ratio 13.8, with a dividend yield of 7.6%. And Sainsbury is on a P/E ratio of 10.5, with a dividend yield of 5.7%.

These supermarkets, particularly Tesco and Sainsbury, now look cheap. And what is particularly noticeable are the stonking dividend yields. These companies are no longer the growth plays they used to be. But they have turned into what may soon be the ideal dividend play. Of the three, my pick at the moment would be Tesco.

So, have the supermarkets bottomed yet? Well, I am biding my time, checking my watchlist, and waiting for the right moment. Turnaround and income plays are not things you rush into but, at these prices, I am seriously interested in buying.

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.

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK  owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »