Would You Buy And Forget Barclays PLC, Tesco PLC Or Unilever plc?

If the market closed for five years, would you hold Barclays PLC (LON: BARC), Tesco PLC (LON: TSCO) or Unilever plc (LON: ULVR)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Imagine that the stock market closed for five years and you could only buy one share to hold through that period. Would you be most comfortable with Barclays (LSE: BARC), Tesco (LSE: TSCO) or Unilever (LSE: ULVR)?

Whatever decision you make, maybe that’s how you should invest all the time. Unless we’re prepared to hold shares for the long-term, maybe we shouldn’t be holding them at all. I think this test is a good way to tease out the strength of conviction (or lack of it) that we really feel for the businesses underlying our shareholdings.

Big banks, big challenges

Barclays is the first firm I would rule out. Big banks face big challenges and I’m not prepared to risk holding them for five years without looking. The top risk arises from Barclays’ cyclicality. Banks’ profits rise and fall in line with unpredictable macro-economic cycles. That means shares in the sector are shooting up, plunging down, or marking time as the market compresses valuations in a vain attempt to iron out the effects of the cyclicality inherent in the sector.

The result of holding a bank like Barclays for a long time can be lacklustre total investment returns at best, but if we get the timing wrong, there’s  danger of making a losing investment in the banks. On top of that, the entire sector faces a gathering disruptive challenge from financial technology-driven competitors and from up-and-coming challenger banks cherry-picking the juiciest parts of the industry. Then there are the regulatory headwinds blowing so hard and the apparent will of governments to cut down the big banks’ size so they can’t threaten the stability of the world’s financial system. All those things add up to a powerful reason to avoid the big London-listed banks.

A sector threatened

Supermarket chain Tesco doesn’t make the cut either. For years supermarkets such as Tesco had it good due to the fast-and-loose spending habits of the public, but last decade’s financial crisis put a stop to all that. Cash-strapped shoppers now try to make every penny count and that environment proved fertile for disruptive challenger operations Aldi and Lidl.

Together, Aldi and Lidl attract around 10.4% of the nation’s grocery spend and rising fast. I think that’s a real and growing threat to the traditional supermarkets capable of keeping them in retreat for years. I don’t believe in the long-term recovery potential of Tesco. The firm has a bloated store estate that could prove to be a liability as the company tries to manage its own contraction.

Tesco and the other big supermarket chains built their dominant positions when conditions were different and now many of their operating and sales methods don’t work as well. They’ll try to adapt, but selling groceries has always been a low-margin high-volume business with little to differentiate one operator from another — not the best of set-ups to base a recovery investment on.

Grinding it out

The company I would buy and forget for five years is Unilever. The firm’s brands in the fast-moving consumer goods space deliver lots of reliable cash flow as customers re-buy repeatedly. Come recession or boom, people need their essential cleaning, personal care and food products and my guess is that Unilever will keep grinding out and steadily expanding its offering for years to come.

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 assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »

Investing Articles

I think the Rolls-Royce dividend is coming back – but when?

The Rolls-Royce dividend disappeared in 2020 and has not come back. But with the company performance improving, might it reappear?

Read more »

British Pennies on a Pound Note
Investing Articles

Should I snap up this penny share in March?

Our writer is considering penny shares to buy for his portfolio next month. Does this mining company merit a place…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Stock market bubble – or start of a bull run?

Christopher Ruane considers whether the surging NVIDIA share price could be symptomatic of a wider stock market bubble forming.

Read more »

Investing Articles

Buying 8,254 Aviva shares in an empty ISA would give me a £1,370 income in year one

Harvey Jones is tempted to add Aviva shares to his Stocks and Shares ISA this year. Today’s 7.37% yield isn't…

Read more »

Investing Articles

Is the tide turning for bank shares?

Bank shares are trading on stubbornly cheap-looking valuations yet business performance in the sector is broadly robust. Should our writer…

Read more »