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Why Wm. Morrison Supermarkets Plc Is A Top ISA Buy

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There’s a competition brewing here at Fool HQ, with all-comers throwing their hats into the ring, declaring their share as the ‘top buy’ as we race toward ISA season.

Well, Fools, today I have another contender you might want to consider adding to your trolley. If you’re shopping for a fresh ISA idea — and good value for money — you might want to take a closer look at Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US), the out-of-favour grocer.

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morrisonsSupermarket Morrisons needs little introduction — it’s a household name most UK consumers will be familiar with (especially those north of Watford) and it’s a share that UK investors love to debate. With the stock down 28% since the start of 2012, it’s fair to say which side of the argument feels the most smugly at the moment!

But despite drawing criticism for being slow to enter the growing Online and Convenience channels, I think Morrisons has been smart to pick its fights wisely, and instead enter these markets opportunistically. They’ve chosen to do that by linking up with Ocado online, and by pouncing on small locations at good prices on the high street.

That might not be a popular opinion, but hindsight is a wonderful thing. Attempting to move in-step with its larger rivals could have proven a reckless distraction. And there’s no telling how much trouble Morrisons would be in if it had thrown money blindly into expansion, with its northern stores struggling. Morrisons has thrived in the past by fighting intelligently in the gaps left by its rivals, not by pioneering expensive new channels.

Even if you believe Morrisons is late to the party, it’s pointless to look backward in investing. In 2014 — looking forwards — this is all low-hanging fruit for Morrisons to now capture, which previously it had no access to.

Trading at less than 10 times prospective earnings and offering a 5.4% prospective dividend yield, you could say Morrisons looked inexpensive. But that’s not the only reason it looks cheap. Morrisons’ current market value is just £5.5bn — however, its freehold property portfolio alone has been valued by analysts at between £7-10bn.

Morrisons’ shares are well out of favour currently, and the opportunist within me likes the stock at today’s prices. Crucially, its current results are being held back — both absolutely and relative to its rivals — due to its heavier exposure to consumers outside of London. It’s in areas like Bradford, Hull and Hartlepool that British shoppers are feeling the squeeze — towns like these are Morrisons’ heartland. But like all cyclical problems, this will eventually turn around.

When economic growth filters northwards into these regions and consumer confidence broadly improves across the UK, I think we’ll see these consumers return to Morrisons’ newly refurbished stores. Before they do — while it’s still out of favour — now might be the perfect time to make Morrisons your ISA pick.

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> Mark doesn't own shares in any company listed here. The Motley Fool has recommended the shares of Morrisons.

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