Shares in Morrison look a good buy for cautious investors in turbulent times.
Morrison's (LSE: MRW) shares were available at a discount last year and were a rare winner for blue-chip investors during troubled times, putting on around 10% including dividends.
This year hasn't been quite as kind to shareholders who stayed on for the ride. Having entered 2012 at 326p per share, general sentiment and fears over the real reasons for the departure of the FD sent the shares down to 261p earlier this week (though a 7.53p final dividend has been paid en route).
The outgoing FD was credited with turning the company away from the financial abyss Morrison faced after its takeover of Safeway led to a slump in profits.
Nevertheless, this was a price at which I decided to buy into the shares again on a "buy four, get one free" basis, as I believe them to be worth more like the 325p mark they were a few months ago.
Setting such price targets is a dangerous game, of course; things change. Still, the shares are currently 266p, at which the anticipated yield is a respectable 4.5% this year, with a price-to-earnings ratio of 9.5. Of course, both these figures improve next year if the brokers are proved right. I'm as sure as an investor ever can be that they will be.
Nicely boring, good value
That's because Morrison is a safe haven, nicely 'boring' business. It has a reasonably healthy balance sheet with gearing of 27% and a price to tangible book value of 1.3. The company is also busy buying back its own shares with a target to 'retire' £1bn of equity by next March.
In uncertain economic times, our tendency is to move towards cheaper grocery shopping, so Morrison generally does well. That said; it is facing competitive pressures from both sides of the food-chain. And unlike the other major food retailers, Morrison has made a strategic decision to protect profit margins rather than entering pricing wars.
There are two sides to every market. Perhaps competitive pressure from Tesco (LSE: TSCO) and Wal-Mart's Asda make Morrison's overall strategic position too difficult. And perhaps Sainsbury's (LSE: SBRY) recently improved performance has come at the cost of some of Morrison's market share.
But such fears look priced in too far to my mind, so I expect Morrison's shares to move ahead by 15-20% or so over the next 12 months. Time will tell…
Let me finish by adding that more share ideas can be found within "Top Sectors For 2012" -- a Motley Fool study of three favourable sectors that could offer potential opportunities for long-term investors. The report is free.
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> David owns shares in Morrison & Sainsbury. He doesn't own shares in any of the other companies mentioned. The Motley Fool owns shares in Tesco.