Marks & Spencer vs Tesco: which are the best shares to buy today?

Tesco shares offer an attractive dividend at the moment. But could Marks and Spencer stock be a better investment in the long run?

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Both Marks and Spencer (LSE: MKS) and Tesco (LSE: TSCO) shares are performing well at the moment. Over the last year, they’ve risen about 50% and 24%, respectively.

Wondering which shares are looking most attractive today? Let’s compare them and try to find out.

Which business has more momentum?

Let’s start with a look at which business is performing better today.

Should you invest £1,000 in Marks and Spencer right now?

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See the 6 stocks

Looking at analysts’ forecasts, Marks and Spencer’s revenues are expected to increase 3.7% this financial year (ending 31 March 2025). That compares to growth of 2.4% for Tesco (its financial year ends on 28 February 2025).

As for earnings per share, Marks and Spencer is expected to generate growth of 14%. That compares to 3% for Tesco.

So, Marks and Spencer is the clear winner here. Not only is it growing its top line faster, but its earnings growth is expected to be far superior to that of its peer.

Created with Highcharts 11.4.3Marks And Spencer Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Which shares are cheaper?

Moving on to valuation, Marks and Spencer shares currently trade on a price-to-earnings (P/E) ratio of 11.2. Meanwhile, Tesco shares sport a P/E ratio of 12.1.

So, Marks and Spencer is the cheaper stock.

It’s worth noting that the average analyst price target for Marks and Spencer is 18% higher than the current share price. However, for Tesco, it’s only 12% higher than the current price.

Overall, Marks and Spencer looks to have more potential for capital gains.

Who has the highest dividend?

Tesco is the winner when it comes to dividends, however.

Currently, its shares yield about 4.1% By contrast, the yield on Marks and Spencer shares is only 1.9%.

Do note that next financial year, Marks and Spencer is forecast to raise its payout by 25% versus 9% for Tesco. So, the yield gap could narrow in the future.

Created with Highcharts 11.4.3Tesco Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What are the risks?

As for risks, both companies face them.

I think the biggest risk for Tesco is that customers move to lower-cost supermarkets like Lidl and Aldi. Marks and Spencer may be protected from this to a degree as it has a more affluent customer base. These customers are less likely to be impacted by the cost-of-living crisis.

For M&S though, the biggest risk might be competition in the clothing space. It’s having a lot of success in clothing at the moment, but there’s no guarantee that this will continue. Rivals new and old are everywhere.

The winner?

Putting this all together, it’s a close call but the winner for me is Marks and Spencer. It’s the stock I’d buy today if I was looking to snap up one of these blue-chip retailers for my portfolio.

I do think there’s a lot to like about Tesco shares right now. The valuation is very reasonable and the dividend yield is attractive. But in terms of potential for overall returns (gains and income) in the years ahead, I think Marks and Spencer has the edge.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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