Despite chancellor Rishi Sunak’s £330bn business crisis package, the stock market crash continues. The FTSE 100 is down another 3.5% today and is threatening to smash through the 5,000 barrier once again.
Supermarkets are up across the board, boosted by the chancellor’s pledge to give retail, hospitality and leisure businesses in England a 100% business rates holiday for the next year.
Sainsbury’s paid more than £500m in business rates last financial year, so that’s a big deal. It equals the planned savings chief executive Mike Coupe was already planning to make by 2024. No wonder the Sainsbury’s share price was up more than 10% at one point.
Stock market crash boosts grocers
Unlike many FTSE 100 companies, the big grocers have seen demand climb. Shoppers are stockpiling and online delivery services are maxed out. If things go well, they could even number among the heroes of the Covid-19 crisis.
The Sainsbury’s share price is down around 12% year-to-date, but that looks good against the 30% drop across the FTSE 100 as a whole. It’s been in long-term decline for a decade, falling from 328p in 2010, to 204p today. When the coronavirus crisis recedes, it will still face tough competition from Aldi, Lidl, and the rest.
We should also remember that recent half-year profits fell by a punishing 92%. Sainsbury’s is not out of the woods yet.
The big attraction is it now trades at a bargain price of 9.1 times forward earnings, which gives you a cushion against further setbacks. I would primarily recommend it for its dividend yield, currently a generous 5.8%. And, unlike some stocks on the FTSE 100, it’s comfortably covered 1.8 times by earnings. Worth considering.
Here’s an even bigger FTSE 100 bargain
After peaking at nearly 500p in 2015, the BT share price has been absolutely savaged and trades at around 124p today. Investors who tried to catch this falling knife have the scars to prove it.
The coronavirus triggered another sell-off, with the stock falling 35% year-to-date. But it got a boost in last week’s Budget, when the chancellor confirmed plans to invest £5bn on rolling out full-fibre broadband across Britain. This will bring another 5m homes into the network, mostly in rural areas.
BT Group stock is climbing again following yesterday’s bailout, and looks even more of a bargain than Sainsbury’s. It’s trading at just 4.8 times forecast earnings, while its forecast yield is a dizzying 9.1%, with cover of 2.2.
That payout looks vulnerable though, given the planned 5G investment splurge, while its pension deficit and ballooning £18.2bn net debt cast a shadow. Also, there’s uncertainty over who ultimately foots the bill for the Premier League hiatus. The broadcasters?
BT has its troubles, but still made a full-year profit of more than £2bn in 2019. It’s an even riskier buy than Sainsbury’s though.