2014 has been nothing short of a disaster for investors in J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US). Indeed, shares in the supermarket chain have fallen by a staggering 37% since the turn of the year and are showing little sign of a revival.
Of course, a major reason for their fall is unprecedented competition within the UK supermarket sector, which has hit Sainsbury’s bottom line very hard.
Despite this, now could be a golden opportunity to buy shares in the company and, in the long run, they could help you retire rich. Here’s how.
Economic Changes
Of course, the changes that have occurred in recent years with regard to UK shoppers becoming more price-sensitive are to be expected. After all, wage growth has been anaemic at best and, while inflation has been much lower than many economists had forecast after several rounds of QE, shoppers have seen their disposable incomes fall in real terms during the last six years. As a result, no-frills supermarkets such as Aldi and Lidl have muscled in on the market share of Sainsbury’s and its traditional peers.
However, nothing stands still and the economy is no different. While stock markets are extremely volatile at the moment, the UK economy is experiencing something of a purple patch. Indeed, it is the fastest growing economy in the developed world and although the austerity programme has been heavily criticised it seems to be working.
This means that, according to the Bank of England, wage rises should outstrip inflation over the medium term. This could, in turn, lead to shoppers becoming less price sensitive, since they have more money in their back pockets and, as a result, the basic, unbranded products on offer at the likes of Aldi and Lidl may start to appeal a little less than they do at present.
Looking Ahead
Clearly, such a situation would be great news for Sainsbury’s, with its focus on customer service and quality alongside competitive pricing. Of course, it may take some time for the aforementioned changes to manifest themselves in higher sales so, to that end, Sainsbury’s move into no-frills retailing via a joint venture with Netto could prove to be a sound move.
As well as having a potential economic tailwind, Sainsbury could prove to be a profitable investment simply because it is priced so cheaply. For example, its price to earnings (P/E) ratio stands at just 9.2, while it currently yields a hugely enticing 5.6% (both ratios use next year’s forecast figures).
As a result, any improvement in its fortunes (or even just a stabilisation) could lead to improved investor sentiment. While it may take time to come good, Sainsbury’s could prove to be a winning investment over the medium term that helps you to retire rich.
