Why J Sainsbury plc Plus Supergroup PLC Equals The Perfect Retail Combination!

It’s rare to find a company that offers good value, strong growth prospects and a top notch yield. In fact, if it offers the latter two, for instance, then its share price is often bid up by investors so that it becomes overvalued (and its yield suffers as a result). Similarly, high-yield stocks often offer little in the way of above-average growth prospects, while cheap stocks can be cheap for good reason.

However, achieving those three aspects of investing can be simply achieved by buying shares in Sainsbury’s (LSE: SBRY) and Supergroup (LSE: SGP). That’s because, while Sainsbury’s lacks growth potential in the near term, this is made up for by Supergroup’s excellent growth forecasts.

For example, Supergroup is expected to increase its bottom line by 15% in each of the next two years, which is roughly twice the forecast growth rate of the wider market and is well ahead of Sainsbury’s lacklustre growth prospects.

Similarly, Sainsbury’s has a fantastic yield that, perhaps more importantly, is well covered by profit. For example, it has a yield of 4% at the present time which, when you consider that inflation is just 0.3%, is a very appealing prospect. And, with dividends being covered twice by profit, the chance of dividend cuts moving forward seems to be rather slim, thereby making Sainsbury’s a relatively attractive defensive play.

The Similarities

Of course, Sainsbury’s and Supergroup aren’t all different; they do have similarities. A key similarity is that they both have highly competent management teams and this bodes well for investors in both companies. For example, Sainsbury’s has shifted its pricing strategy in response to an improving UK consumer outlook, with it focusing on delivering higher margins and value for money, rather than just offering low prices. Similarly, Supergroup is likely to become more efficient, leaner and more profitable under its new management team, which clearly makes it a much more appealing stock, too.

In addition, both Sainsbury’s and Supergroup offer excellent value for money at the present time. Sainsbury’s, for example, trades on a price to earnings (P/E) ratio of just 12.4 which, while the FTSE 100 has a P/E ratio of around 16, indicates that an upward rerating could be on the cards. And, with it having a price to earnings growth (PEG) ratio of just 0.9, Supergroup appears to offer strong growth prospects at a very reasonable price.

Looking Ahead

Furthermore, both stocks seem to be well placed to benefit from an improving UK consumer outlook, with increasing wage rates and low deflation all set to provide the retail sector with a boost moving forward. And, with their mix of growth, income and value, Sainsbury’s and Supergroup could prove to be a winning combination and could be well worth buying right now.

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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.