Tesco (LSE: TSCO) shares have had a good run so far in 2023, up 23% at the time of writing.
That means £10k put into the stock at the beginning of 2023 would be worth £12.3k today.
If I could do that every year, I’d be a very happy investor. In fact, it would put me ahead of even billionaire Warren Buffett. He’s managed an average return of ‘only’ 20% per year since he took over Berkshire Hathaway in 1965. Pah!
To be serious, Tesco shares are actually pretty flat over the past five years, and a look at the chart tells me a few things.
Contrarian
When the stock market crashed in 2020, Tesco shares stayed up. Then when most stocks recovered as Covid faded, Tesco fell back.
So, something as dull and boring as a supermarket stock is actually a contrarian favourite? That’s certainly what it looks like.
But it actually makes sense, and I’ll explain why.
There’s one mistake I definitely try to avoid, and it’s a very common one. That’s to only think about investing in safe defensive shares after the stock market falls on hard times.
Safety margin
When times are good and share prices are flying, it’s easy to forget about risk. See a great new growth stock opportunity? It’s a bullish time, so pile in.
I’ve done it, for sure. I’d bet most stock market investors have.
Thankfully, I haven’t made the mistake too often. And these days, I can generally stop myself and think no, I should lay down some more top dividend stocks instead.
What’s happened to Tesco stock in the past few years makes it clear that investors see it as defensive. They’ve been buying in the hard times, and selling when things looked better.
2023 clouds
And as the economic clouds have gathered again in 2023, the market has turned back to the safety of good old Tesco shares again.
So, what does that say about buying Tesco today? Are we looking at a good value stock?
Well, the ups and downs of the share price don’t tell the whole story. It might have gone nowhere overall in five years, but Tesco has been paying good dividends.
They’ve been around 4% per year, with the same forecast for this year. And that’s really not too shabby at all.
Buy now?
The main risk I think is that we could well see a contrarian dip in Tesco shares in the next year or two. When bullishness returns to the stock market, I suspect the crowds could turn away from Tesco and go buy some risky growth stuff instead.
So, this year’s 23% gains to date might even reverse in 2024. And Warren Buffett will probably end up beating me after all.
But I think Tesco could be a good long-term potential buy for those who want a bit of safety in their stocks. I’d rate it as one to top up at regular intervals, to cope with any volatility. Or just consider buying on the dips.
