Tesco (LSE: TSCO) shares are having a monster run. The FTSE 100 grocery giant’s up 27.97% over one year and 60.22% over two.
I’m usually wary of buying stocks when they’re riding high. Sod’s law says the fun will end the moment I hop on board. Yet right now, Tesco looks unstoppable.
This is a brilliant FTSE 100 dividend growth stock
It’s cemented its position as the UK’s most popular supermarket, with market share of 27.9%, according to Kantar. Rival Sainsbury’s is a distant second at 15.5%. German budget chains Aldi and Lidl remain a threat, but no longer a mortal one.
On 3 October, Tesco reported a healthy 4% increase in first-half sales (excluding fuel) to £31.5bn, with underlying retail operating profit up 10% to £1.6bn. Higher staff pay was offset by cost-cutting and productivity improvements.
As well as share price growth, loyal investors get a dividend too. Tesco’s trailing yield’s 3.3%. All looks good, but I do have one concern.
So far, Tesco investors have shrugged off concerns over the slowing UK economy, and the impact of Budget-induced national insurance and minimum wage hikes on businesses. Given that Tesco is the UK’s second largest employer with more than 300,000 staff, this will squeeze margins from next April. And they’re already thin at 4.1%.
I’m still tempted but there’s another sticking point. I’m fully invested right now. So I’ll have to sell something to buy Tesco. FTSE 100 mining giant Glencore (LSE: GLEN) springs to mine.
The Glencore share price has had a rotten run, falling 15.34% over one year and 32.03% over two.
Personally I’m down 15.19% and with the shares continuing to slide in recent weeks, I’m not expecting a swift recovery.
Should I ditch my Glencore shares?
The big problem is key customer China. The commodity sector’s cyclical, and was flying high when the world’s biggest economy was having a growth spurt, gobbling up 60% of global metals and minerals production.
China has well-documented problems within its property and banking sectors, and even if it didn’t, growth had to top out at some point. No country can post double-digit GDP growth forever. Especially when its population is both shrinking and ageing.
Premier Xi Jinping’s repeated stimulus packages have failed to relight the fire and risk throwing good money after bad anyway. US President-elect Donald Trump’s trade tariff threats could inflict further damage.
It could be worse. The World Bank says industrial metal prices should be relatively stable for the next two years amid tight supply, while the energy transition may drive demand for certain metals.
Glencore’s first-half group adjusted EBITDA earnings plunged 33% but it still generated $6.3bn. So it’s hardly a basket case. That helped the board cut net debt from $4.9bn to $3.6bn and find $1bn for shareholder returns. It’s also hinted at the prospect of “potential top-up shareholder returns, above our base cash distribution, in February 2025”.
I don’t think it’s a good idea to sell a cyclical stock when it’s down. Especially to buy one that’s riding high, like Tesco. I’ll tough it out and hope Glencore comes good. Starting with those juicy top-up shareholder returns in February.
