Christmas is make-or-break for retailers. A successful festive season can not only boost their top and bottom lines, but also improve investor confidence over the coming months. This year, trading conditions for supermarkets in particular remain tough, with a very high level of competition.

Furthermore, consumer confidence remains under pressure and is at its lowest level since the EU referendum. As such, it could be a challenging period for the likes of Tesco (LSE: TSCO), Morrisons (LSE: MRW) and J Sainsbury (LSE: SBRY).

Cross-selling opportunity

Of course, Sainsbury’s now owns Argos and this should provide a boost to the company’s Christmas performance versus previous years. However, since Argos is a much more cyclical business than food retailing it may suffer to a greater extent than its more defensive, food-focused rivals. As such, Sainsbury’s could struggle to post positive numbers for the festive period even though comparables are unlikely to have been particularly strong.

Looking further ahead, the integration of Argos stores is likely to be relatively smooth. It complements Sainsbury’s current offering and both companies could benefit from the cross-selling opportunities that are on offer. Although Sainsbury’s is forecast to post a fall in earnings of 12% this year and 2% next year, its price-to-earnings (P/E) ratio of 11.7 indicates that it offers good long-term value for money.

A more efficient business

Tesco should enjoy a more prosperous festive trading period than in previous years. It has become increasingly efficient and more focused on its grocery offering. This should allow it to compete more effectively on price with budget operators such as Aldi and Lidl, which in previous years have snatched sales from their larger rival.

With it forecast to increase its earnings by 171% this year and by a further 33% next year, it has a bright medium-term outlook. Its price-to-earnings growth (PEG) ratio of 0.7 indicates that it offers better value for money than Sainsbury’s, which alongside an improving business model makes Tesco the superior buy.

Clearly, there’s more to come from its turnaround programme. Its decision to focus on the UK rather than international expansion could prove to be the wrong one due to sterling’s weakness and the difficult outlook for UK consumers. However, given its wide margin of safety, it remains a sound long-term buy.

Overvalued despite a bright future?

Morrisons also has good prospects. Its value proposition should resonate well with consumers this Christmas given the downbeat outlook for the sector. Its strategy is likely to be highly effective in future years, since it’s leveraging its status as a major food producer to supply Amazon in its home delivery venture. Morrisons’ decision to return to convenience store shopping via the Safeway brand could also boost its earnings in what is likely to remain a growth area over the medium term.

Despite Morrisons being forecast to increase its bottom line by 10% this year, its shares lack appeal compared to Tesco and Sainsbury’s. Morrisons trades on a PEG ratio of 2.1 and has a P/E ratio of 21, which makes it much more expensive than its rivals. As such, its peers seem to be better buys for long-term investors, with Tesco offering the greatest appeal of the three companies.

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Peter Stephens owns shares of Morrisons, Sainsbury (J), and Tesco. The Motley Fool UK owns shares of and has recommended Amazon.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.