3 Clear Buying Signals For Tesco PLC, McColl’s Retail Group PLC And Debenhams Plc

These 3 stocks are set to post storming returns in the long run: Tesco PLC (LON: TSCO), McColl’s Retail Group PLC (LON: MCLS) and Debenhams Plc (LON: DEB)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Life as an investor in UK retail companies has been tough in recent years. The credit crunch has caused disposable incomes to come under pressure and, as a result, shoppers have become increasingly focused on price above all else.

While this situation may not last since inflation is now lagging wage growth, the damage has been done to the share prices of retailers such as Tesco (LSE: TSCO), McColl’s (LSE: MCLS) and Debenhams (LSE: DEB). Their share prices have fallen by 31%, 14% and 4% respectively in the last six months alone and, as such, they offer highly enticing valuations.

For example, Tesco now trades on a price to earnings growth (PEG) ratio of 0.7. That’s at least partly because it is due to increase its bottom line by as much as 22% next year, with its turnaround strategy seemingly starting to have a positive impact on the company’s bottom line. Similarly, Debenhams now trades on a price to earnings (P/E) ratio of only 10.2 which, for a company with a relatively loyal customer base, appears to be rather low. And, with McColl’s having a P/E ratio of just 9.2, an upward rerating for its shares seems to be on the cards.

In terms of positive catalysts to push their share prices higher, all three companies appear to have sound strategies. In Tesco’s case, it is becoming more efficient through stocking a narrower range of products and is also focused on improving customer service levels. This is a prudent approach and should lead to rising profitability as well as a more loyal customer base.

Debenhams, meanwhile, is focused on expanding its online presence and utilising concessions within its stores, such as Costa Coffee. It is also trying to wean itself off over-discounting and running too many promotions, which may boost its top line but do little to aid its bottom line. And, with McColl’s continuing to seek acquisitions as well as offer a wider range of services within its convenience stores (such as Post Office counters), it should deliver improved performance in the medium to long term.

While Tesco currently yields just 0.3%, dividends are due to nearly quadruple next year. Looking further ahead, Tesco has scope to significantly raise dividends due to its low payout ratio. In fact, were it to pay out a modest two-thirds of profit as a dividend next year it would equate to a yield of 4.4%.

For those seeking a high yield now, McColl’s holds the greatest appeal, with its yield standing at a whopping 6.8% and, being covered 1.6 times by profit, it appears to be highly sustainable. Meanwhile, Debenhams remains an appealing income play, too, with a yield of 4.4% due to be paid next year.

So, while their recent performance may have been poor, the valuations, strategies and income potential of Tesco, McColl’s and Debenhams makes them excellent buys at the present time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Debenhams and Tesco. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »