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Why WM Morrison Supermarkets PLC And McColl’s Retail Group PLC Could Be Strong Performers This Year

While the supermarket sector is going through an incredibly challenging period, with food price deflation set to remain a feature in the months ahead, the convenience store market is booming. For example, in J Sainsbury’s trading statement released yesterday, it posted growth of 16% in sales in its convenience store estate, with shoppers’ habits seemingly shifting in favour of multiple ‘top-up’ shops during the week.

As a result, companies that are set to gain exposure (or already have exposure) to this lucrative niche could be worth buying. With this in mind, here are two stocks that could be set for strong performance in 2015.

Morrisons

While Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US) had literally a handful of convenience stores prior to 2014, it has vastly expanded its estate and is targeting rapid growth in the size of its convenience store footprint over the medium term.

Although this means that its sales figures have lagged behind those of rivals that already have significant exposure to the convenience store market, its expansion into this space could prove to be a catalyst for its top and bottom lines moving forward.

In addition, shares in Morrisons seem to offer excellent value for money at the present time. For example, they trade on a price to earnings (P/E) ratio of just 12.1 and have a price to book ratio of only 0.9. Furthermore, they offer a highly appealing yield of 6.6% (which takes into account the forecast dividend cut for the next financial year).

And, while it may take time for Morrisons to build up its exposure to the rapidly growing convenience store segment, investor sentiment could pick up in the meantime as the market anticipates improved future sales figures.

McColl’s

With around half of its estate being made up of convenience stores, McColl’s (LSE: MCLS) seems to be well positioned to benefit from continued growth in the segment. That’s evidenced by earnings growth forecasts for the current year and for next year, when McColl’s is expected to increase its bottom line by 7% and 8% respectively, which is slightly ahead of the wider market’s forecast growth rate.

Despite this, McColl’s trades on a very low valuation. For example, it has a P/E ratio of just 9.8 and this highlights just how much scope there is for an upward adjustment to its rating. Furthermore, a dividend yield of 6.2% is not only hugely impressive, but is well-covered by profit at 1.7 times and, with dividends per share forecast to rise by 8.3% next year, could be as much as 6.7% in 2016.

So, with a dirt cheap share price, strong earnings growth potential, as well as a top notch yield, McColl’s could prove to be a stock worth holding in 2015.

Despite this, McColl's and Morrisons do not feature in a free and without obligation guide from The Motley Fool called 5 Shares You Can Retire On.

The 5 companies that do feature come with a potent mix of dependable dividends, superb earnings growth potential, and super-low valuations. As a result, they could make a major contribution to your portfolio returns and help make 2015 an even more prosperous period for your investments.

Click here to find out all about them - it's completely free and without obligation to do so.

Peter Stephens owns shares of Morrisons and J Sainsbury. 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.