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A FTSE 100 share I’d buy instead of Tesco

Screen of various price trends, possibly in FTSE 100
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Could Tesco (LSE: TSCO) be one of the best-value FTSE 100 stocks for me to buy right now? Well the Tesco share price seems to offer splendid value on paper. Britain’s biggest retailer is expected to record a 149% earnings rise this fiscal year (to February 2022). This results in a price-to-earnings (P/E) ratio of 13.5 times, way below the Footsie average of 16.5 times.

What’s more, the Tesco share price seems to offer great value from an income perspective too. The supermarket’s forward dividend yield sits at a meaty 3.8%. That’s a good half a percentage point better than the FTSE 100 forward average.

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I think Tesco’s share price is cheap for a reason. Not only does the business face a growing struggle as competitors expand their services on terra firma and online. The firm’s near-term profits forecasts are increasingly in danger of being blown off course by product shortages and spiraling costs.

Problems for the Tesco share price

The supply chain issues that have prompted gaps on some of its shelves are tipped by many to worsen towards Christmas as coronavirus and Brexit-related logistics problems persist. It also faces a severe shortage of shop workers and lorry drivers following changes to immigration rules post-Brexit.

In addition, it also faces the prospect of soaring supplier costs (and even food shortages) as carbon dioxide shortfalls hover into view. It’s uncertain for how long these problems could weigh on Tesco’s profits column.

Fans of Tesco would argue though that it has the financial muscle and the know-how to sail through these crises and still deliver decent profits to its shareholders. After all, the retailer has seen it all in its 100-odd years of existence. And, of course, Tesco has the best online proposition in the business. This puts it in the box seat to ride the e-commerce explosion.

A FTSE 100 retailer I’d rather buy

That said, I’d much rather buy shares in B&M European Value Retail (LSE: BME) today. Sure, this FTSE 100 retailer is a tiddler compared to Tesco (it has a market capitalisation of £6bn versus Tesco’s £20bn-plus). It also commands a meatier rating than Tesco’s share price (it trades on a P/E ratio of 16.5 times). And, of course, it faces the same supply-side problems and competitive pressures of its blue-chip counterpart.

However, the growing importance of value to the modern shopper puts B&M in much better shape for long-term growth. Analysts at GlobalData think the discount end of the food and grocery market will be worth £21.8bn in 2022, up more than £6bn from this year’s predicted levels.

Such forecasts reinforce my belief that value is one of the hottest parts of the retail sector for UK share investors to latch onto. And B&M’s rapidly expanding to make the most of this glorious opportunity. I think this FTSE 100 share is one of the best ways to make money from this phenomenon too.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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