The Benefits Of Investing In J Sainsbury plc

Today I am outlining why J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) could be considered an attractive addition to any stock portfolio.

Severe price weakness provides stellar value

With the fragmentation of the British grocery space significantly hampering sales growth, Sainsbury’s has suffered the same fate as its middle-ground rivals Tesco and Morrisons in experiencing severe share price weakness. The supermarket’s share price fell below 300p this week — its cheapest level for more than two years — and it has declined by 17% since the start of the year.

And this changing landscape is expected to compromise the supermarket’s proud record of solid growth — the company has seen earnings Sainsbury'srise at a compound annual growth rate of 5.1% since fiscal 2009 — with Sainsbury’s expected to record dips to the tune of 7% and 1% for the years concluding March 2015 and 2016 respectively.

Still, many argue that the degree of risk facing Britain’s third most popular chain is already factored into the price, and that Sainsbury’s now provides exceptional value for money. Indeed, the company now deals on a P/E rating of 10.2 for this year — well below the retail sector average of just over 16 — which nudges up to 10.3 for 2016.

Furthermore, the firm’s protracted price weakness also makes it a terrific value pick for dividend chasers, in my opinion. Although earnings pressure is predicted to result in payout cuts this year and next, Sainsbury’s still carries yields of 5.5% and 5.4% for 2015 and 2016 correspondingly, smashing a forward average of 3.6% for the complete food and drugs retailers sector.

Discount entry offers solid growth potential

And arguably Sainsbury’s is in a better position to stage a recovery that its mid-tier competitors, underlined by its ability to keep market share steady at around 16.8% while Tesco and Morrisons have both seen their shares nosedive.

Through a careful mix of intensive brand development, shrewd marketing, and massive investment in the online and convenience sub-sectors, the firm has managed to keep sales ticking higher, while underexposure in certain parts of the country — in particular the North — also provides Sainsbury’s with significant growth opportunities.

But undoubtedly the company’s plan to reintroduce the Netto chain this year gives it the ammunition to bounce back against the biggest threat facing the established supermarket chains — the rise of the discounters. Sainsbury’s is aiming to introduce 15 budget stores by the close of 2015, and with expansion across the country set to commence from next year, the London firm is aiming to finally take the fight to the likes of Aldi and Lidl.

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Royston Wild has no position in any shares mentioned. The Motley Fool owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.