Can J Sainsbury plc Beat The FTSE 100 In 2015?

Despite a recent surge, shares in J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) have delivered a dismal performance in 2014. They are down 27% since the turn of the year and have been easily outperformed by a lacklustre FTSE 100 that is flat year-to-date.

Looking ahead, though, could J Sainsbury turn the tables in 2015 and beat the wider index? Or, is more misery set to be experienced by the company’s shareholders next year?

Supermarket Declines

As announced this week, UK grocery sales have declined for the first time in twenty years, with a price war and the falling price of food commodities hitting major players such as J Sainsbury. Indeed, the company’s sales fell by 2.5% over the last three months, as a changing landscape continues to hurt the major supermarkets and no-frills operators such as Aldi and Lidl continue to benefit, with their sales growing by 25.5% and 16.8% respectively.

Future Potential

However, just because J Sainsbury has endured a challenging period that is lasting longer than most investors expected, it does not mean that the future will be ‘more of the same’. In fact, 2015 could prove to be a very different year than 2014 and, if it isn’t, J Sainsbury appears to be ready to benefit in any case.

Indeed, the UK economy is improving rapidly. In fact, with inflation being just 1.3% last month (and having the potential to move lower), the pace of wage rises could outstrip price rises for the first time in around five years. This could shift the spending habits of UK consumers away from the likes of Aldi and Lidl and towards premium operators, such as J Sainsbury. In other words, we could go back to the pre-credit crunch days when shoppers thought about quality and service as well as price.

However, if the spending habits of shoppers do not shift and wage rises do not outpace inflation, J Sainsbury could also benefit. That’s because it is moving into the no-frills space via a joint venture with Netto, which means that J Sainsbury could see its sales decline level off if shoppers continue to focus solely on price moving forward.

Certainly, it could take time for the Netto brand to grow, but with the J Sainsbury name behind it, it could prove to be a success in 2015 and beyond. As a result, it could neutralise the threat posed by the likes of Aldi and Lidl, leaving J Sainsbury to compete with premium operators such as Waitrose, which continues to grow its sales figures.

Looking Ahead

While shares in J Sainsbury are up 7% in the last month, they are still very cheap. For example, they currently have a price to earnings (P/E) ratio of just 10, while their price to book ratio of 0.85 appears to offer excellent value for money – especially when you consider that J Sainsbury’s balance sheet is made up of mostly tangible assets, such as property.

So, while 2014 has been nothing short of a disaster for investors in J Sainsbury, 2015 could be a whole lot different. With it going head-to-head with no-frills operators and having the potential to benefit from an economic tailwind, J Sainsbury could beat the FTSE 100 next year and an upward rerating to its current valuation could be on the cards.

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Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.