Those who have J Sainsbury (LSE:SBRY) shares in their Stocks and Shares ISA may be concerned to learn that the grocer’s the most shorted stock on the FTSE 100. On this basis, some might think of it as the ‘most hated’ on the index. Although to be fair, it’s only five institutional investors that have borrowed 6.14% of the group’s shares in the hope (expectation?) that they fall in value. Nonetheless, 6% of the company is currently (11 July) worth around £390m.
But I think they may have made a mistake. Of course, I have no idea for how long they’ve borrowed the shares. It’s entirely plausible that the stock could fall in value over the next week or month. However, I’m looking several years ahead.
A tough industry
The UK grocery market’s one of the most competitive around. Margins are slim. And as consumers, we are constantly bombarded with adverts and promotions tempting us to shop around or switch supermarkets.
Years ago, it used to be a big ‘no-no’ to mention a rival as part of an advertising campaign. Nowadays, it seems as though all supermarkets are doing it. Indeed, Sainsbury’s proudly boasts of its “Aldi Price Match” promotion on the home page of its website.
But despite the fierce competition that exists in the market, over the past five years, the group’s been able to maintain its GB market share at around 14.8-15.2%.
| 12-week period | GB market share (%) |
|---|---|
| To 15.6.25 | 15.2 |
| To 16.5.24 | 15.1 |
| To 18.6.23 | 14.8 |
| To 19.6.22 | 14.8 |
| To 20.6.21 | 15.2 |
| To 21.6.20 | 14.8 |
Some might consider this to be a bit of a failure. After all, a FTSE 100 company is supposed to grow rather than stagnate. But I think it’s a triumph. That’s because over the same period, the combined share of the so-called discounters — Aldi and Lidl — has increased from 13.7% to 19%.
Despite the onslaught from the German duo, Sainsbury’s has managed to retain second place in the league table of British grocers, without seeing a drop in its market share.
Retaining the same proportion of a growing market will lead to increased revenue and — hopefully — bigger earnings.
Undoubtedly, many FTSE 100 stocks will grow faster. The consensus of analysts is for earnings per share to increase by 16.7% over the next three financial years.
But a well-diversified portfolio could benefit from having exposure to a ‘slow and steady’ defensive stock, especially one like Sainsbury’s, which presently offers an 4.8% yield. Of course, there are no guarantees when it comes to dividends. But the grocer recently declared a 3.8% increase in its annual payout to 13.6p for the 52 weeks ended 1 March, having maintained it at 13.1p for the three previous years.
Not for me, but…
However, despite singing the group’s praises, I don’t want to add the stock to my ISA. That’s because I already own Tesco shares. And for reasons of diversification, I don’t want to own two UK grocers.
At the moment, Tesco’s managing to grow its market share a tiny bit quicker than Sainsbury’s. It also remains the UK’s largest which means it has more financial firepower should there be a bit of a downturn. But its dividend isn’t as generous.
It’s a close call but I still prefer Tesco to Sainsbury’s although, having said that, I wouldn’t be too disappointed if I owned the latter. Other investors could therefore consider including the UK’s second-largest supermarket in their portfolios.
