What You Were Buying Last Week: Wm. Morrison Supermarkets plc

morrisons.entranceOne of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful“. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Profit warning

Things have definitely been changing in the world of supermarkets recently, with the established giants — Tesco and Sainsbury — getting squeezed from both sides, as consumers transfer their loyalty either to the more upmarket likes of Waitrose and Marks & Spencer or to the deep-discounting stores of Aldi and Lidl.

Furthermore, Santa was far from kind to some of the supermarkets in 2013, with Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US), Tesco and Marks & Spencer all admitting to weak trading over the Christmas period.

Worse still, Morrisons didn’t just reveal weak trading — the company issued what amounted to a profit warning, saying that its profits would come in at the bottom end of City forecasts.  As a result, Morrison’s share price has fallen some 6.4% already so far in 2014, and is down 3.3% on this time last year.

So what might have made some people actually buy shares in Morrisons last week, putting the UK’s fourth largest chain of supermarkets into the number 1 spot in our latest “Top Ten Buys” list*.

Prospects for sunshine

Well, whilst the current midwinter situation may look bleak, there may be some prospects for sunshine in Morrisons’ future. 

Morrisons is coming very late to a couple of important supermarket parties — home delivery and convenience stores — and its absence from both so far has undoubtedly hit its revenues and profits. But at least it’s finally turning up.  

The company launched its Ocado-powered home delivery service at the end of last week  Whilst online ordering is only currently available in part of the Midlands, Morrisons will be targeting its Yorkshire home-turf next, and says it aims to reach half of all UK households by the end of this year.

And the company has said that it plans to more than double its number of convenience stores —  increasing the number from 85 to 200 — by the middle of 2015.  

Even then, Morrisons will still lag a very long way behind where its rivals are now — Sainsbury has just opened its 549th “Local” branch, and Tesco dominates the convenience store format with over 1,500 Tesco Express shops and 639 of its “One Stop” branded outlets — but at least it’s a start.

Looking at the fundamentals, Morrisons’ P/E ratio is currently slightly more attractive than its main rivals — it’s forecast at 10.4 for 2014, compared to Tesco’s 10.7 and Sainsbury’s 11.1.   It may not be a big difference, but it’s still something in its favour.

And Morrisons also pays a tidy dividend, with forecast yields of 5%, 5.1% and 5.4% for the next three full years, putting it ahead of both Sainsbury (4.7%, 4.9% and 5.1%) and Tesco (4.6%, 476% and 4.7%).. Whilst the dividend could be at some risk if performance continues to suffer, Morrisons does at least have a history of delivering earnings and dividend growth that should provide some reassurance.

But of course, no matter what other people were doing last week, only you can decide if Morrisons really is a ‘buy’ right now.

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Jon owns shares in Tesco. The Motley Fool owns shares in Tesco and has recommended Morrisons.

* based on aggregate data from The Motley Fool ShareDealing Service.