Here’s why I reckon the Tesco share price is a no-brainer opportunity!

The Tesco (LSE: TSCO) share price recently caught this writer’s eye. Here she explains why the shares look like a good buy for her.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I was recently reviewing the FTSE 100 by share price. I noticed that the Tesco (LSE: TSCO) share price had been on a great run lately. This provided me with the perfect excuse to revisit what I consider to be a great stock to buy for growth and returns in my portfolio.

Let me explain why I’m bullish on the shares.

Good momentum despite challenges

Tesco shares are up 42% over a 12-month period from 256p at this time last year, to current levels of 366p.

Despite Tesco’s size, stature, and market dominance, I was a tad surprised the shares had done this well. The recent cocktail of higher inflation and interest rates, as well as the emergence of supermarket disruptors led me to believe the shares may struggle, or become stagnant at worst. Boy was I wrong.

It’s worth noting that these challenges are risks moving forward too. For example, the economic issues have created a cost-of-living crisis. Wallet-conscious consumers are now bargain hunting, and making their cash stretch further. Margins could be squeezed here.

Supermarket disruptors Aldi and Lidl are primed to benefit, with their low-cost, no frills alternatives. In fact, Aldi has already cornered close to 10% of the UK grocery market. I’ll keep an eye on these credible competitors, as they could damage Tesco’s dominance.

Finally, I’ll keep an eye on Tesco’s debt levels. This is primarily because of the higher interest rate environment we find ourselves in. Debt is costlier to service during times of higher rates.

Why I like Tesco shares

Putting my positive hat back on, it’s hard to ignore Tesco’s presence, track record, and dominance in the sector. With roots stretching back 100 years, Tesco knows a thing or two about navigating challenging trading periods. Events during this tenure include world wars, pandemics, and pretty much everything in between. An existing market share of 27% in the UK segment is far ahead of second place Sainsbury’s 15%.

Moving on, Tesco is not resting on brand power and recognition. The business continues to invest and innovate to boost earnings and performance. Two examples are its online grocery offering, which has grown to 40% market share, and its online market place business. This is where consumers can look to buy pretty much anything they desire, a bit like Amazon, but obviously not on that scale just yet.

Finally, from a fundamental view, a dividend yield of 3.5% sweetens the investment case. However, I do understand that dividends are never guaranteed. Plus, the shares trade on a price-to-earnings ratio of 14. This isn’t the cheapest. However, I firmly believe that you get what you pay for. Paying a good price for what I consider a solid company is a no-brainer for me.

Final thoughts

Overall, I think Tesco shares could help boost my holdings and help me build wealth. With attractive fundamentals, an eye on the future, and a great track record to boot, there’s lots to like.

The next time I have some cash to invest, I’d buy some Tesco shares.

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.

Sumayya Mansoor 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.

More on Investing Articles

Investing Articles

2 shares absolutely crushing the FTSE 100 in 2024!

Not all FTSE 100 stocks are sleepy and meandering. This duo has surged more than four times higher than the…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Growth Shares

The FTSE 100 could hit 9,000 points by year end. Here’s why

Jon Smith talks through some factors that could help to lift the FTSE 100 to a new all-time high and…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d seriously consider buying this UK technology small-cap stock today

Today's positive trading figures and a runway of growth potential ahead make this small-cap stock look attractive to me now.

Read more »

Investing Articles

It’s October! Does this mean UK stocks are going to crash?

Whisper it quietly, but four of the five biggest one-day falls in the FTSE 100 have been in the month…

Read more »

Investing Articles

With new nuclear energy deals in view, Rolls-Royce’s share price looks cheap to me anywhere under £11.48

Rolls-Royce’s share price dipped after a problem on a Cathay Pacific flight but has now bounced back on positive news…

Read more »

Investing Articles

Is the Greggs share price now a screaming buy for me after falling 10% this month?

Harvey Jones watched the Greggs share price climb and climb, but decided it was too expensive for him. Should he…

Read more »

Young black colleagues high-fiving each other at work
US Stock

3 super S&P 500 stocks that could smash global ETFs over the next 5 years

History shows that allocating some capital to top S&P 500 stocks can significantly boost an investor's financial returns over the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

This FTSE 250 insider’s selling but 2 brokers say “buy”. What’s going on?

A director of this FTSE 250 retailer has sold £114m of stock but brokers rate its shares a Buy. Our…

Read more »