When I covered Tesco (LSE: TSCO) shares in October, I said that they looked attractive. At the time, the shares had just had a big pullback and they appeared to offer some value.
Fast forward to today, and I’m kicking myself for not buying a few. Since that article, Tesco’s share price has soared. Here’s a look at how much I’d have today if I’d bought £10k worth of shares three months ago.
22% share price gain
On 14 October, Tesco shares ended the day at 202p. So, let’s say I bought them at that price. A £10k investment would have got me 4,950 shares (ignoring trading commissions).
Since then, the shares have risen to around 246p — roughly 22% higher.
This means that my £10k investment in Tesco would now be worth around £12.2k. That’s an excellent return in just three months.
It’s worth noting that I would not be eligible for the dividend that Tesco is set to pay out on 25 November (3.85p per share) if I’d bought the shares on 14 October.
That’s because the ‘ex-dividend date’ for that particular dividend payout was 13 October. This means that I needed to own the stock on 12 October to be eligible to receive that dividend.
I wouldn’t be complaining though. I’d be pretty happy with a £2.2k profit in just three months.
It pays to buy shares when the market is down
One key takeaway here, to my mind, is that it can pay to buy shares when the market is having a bit of a wobble.
Three months ago, global stock markets were experiencing some turbulence due to concerns over inflation and interest rate hikes.
At the time, the UK’s FTSE 100 index was below 7,000 points (it’s now above 7,800 points). And Tesco’s share price was depressed.
By following the advice of legendary investor Warren Buffett, and buying some shares while others were panicking, I could have generated some decent gains.
Is it too late to buy?
Do Tesco shares still offer a bargain today?
Well, at today’s share price, the forward-looking price-to-earnings (P/E) ratio here is just under 12.
At that multiple, I think the stock is pretty close to being fully valued. In other words, I wouldn’t expect to see big gains from here, unless earnings rocket higher in the years ahead (which I think is unlikely due to inflation).
I still think the shares could play a valuable role in my portfolio from a defensive perspective. The dividend yield here is currently over 4%, which is attractive.
However, I’d prefer to buy them at a slightly lower multiple in order to give myself the best chance of generating a profit.
So, I’m going to keep them on my watch list for now.
All things considered, I think there are a few other UK stocks that offer a bit more value than Tesco at the moment.
