2015 Is Kill Or Cure For Tesco PLC, J Sainsbury plc And WM Morrison plc

Will Tesco PLC (LON:TSCO), J Sainsbury plc (LON:sBRY) and WM Morrison plc (LON:MRW) emerge stronger, or remain on the sick list?

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Tesco (LSE: TSCO), J Sainsbury (LSE: SBRY) and WM Morrison (LSE: MRW) staggered through a turbulent 2014, which saw their share prices plummet 46%, 36% and 32% respectively.

2015 will see another battle for survival. So will they emerge stronger, or remain on the sick list?

Drastic Measures

When things are this desperate, investors will cling to any good news at all. News that Tesco’s like-for-like sales fell 0.3% over Christmas would once have been seen as a disaster, but is cause for celebration today.

Especially since it posted its first growth in fresh food volumes for five years.

New boss Dave Lewis continues to impress with his plans for radical surgery, and is happily untainted by any connection with the previous festering regime.

Drastic Dave is living up to his nickname by closing Tesco headquarters and 43 unprofitable stores, shutting the company’s generous final salary pension scheme, and selling Blinkbox, Tesco broadband and the analytics business behind Clubcard.

He needs to be ruthless, with Tesco debt facing the prospect of being downgraded to junk status by credit rating agencies.

At 192p, Tesco’s share price has recovered from its 52-week low of 155p (that may one day look like a great entry point). The stock was up 6% on Thursday morning following its trading update, as brave investors bet on Tesco climbing off the critical list.

Different Taste

Sainsbury’s has also benefited from low investor expectations. A 1.7% drop in like-for-like festive sales looks good against pessimistic City forecasts of 3.2%. Incredibly, its worst Christmas for more than a decade was heralded as a pleasant surprise.

Chief executive Mike Coupe is taking the price war to Tesco, spending £150m cutting the price of more than 1,000 goods. Yet Sainsbury’s actually benefited from customers trading up to its Taste the Difference range, where sales rose 5%, suggesting to me that it shouldn’t stray too far downmarket.

My concern is that Tesco has the deeper pockets, and Lewis is building momentum.

One Reason To Shop at Morrisons

Better than expected results at Tesco and Sainsbury’s have bolstered Morrisons, although it is also thought to have endured a tough Christmas.

It is still playing catch-up, but at least its online channel is out there, and it is belatedly ploughing into the convenience store battlefield. But that is no guarantee of growth, with Tesco focusing its closures on underperforming convenience stores.

Morrisons’ crazy 7.4% yield, which management has pledged to preserve, is still the juiciest reason to buy this stock.

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 considered so you should consider taking independent financial advice.

Harvey Jones 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.

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