Morrisons (LSE: MRW) is featured in the news today because it is the first supermarket to price a litre of petrol for less than £1. This is somewhat surprising, since in recent years Morrisons has been behind the curve when it comes to stealing a march on its rivals.
For example, it was late to the online ‘party’, with a number of other supermarkets having had an online presence for almost a decade before Morrisons rolled out its own offering in 2014. Furthermore, Morrisons was also late to launch its chain of convenience stores, with the sector already having becoming rather saturated in recent years as its peers took advantage of a gradual shift towards smaller, more frequent shopping trips by UK consumers.
Despite this, Morrisons now appears to have a much clearer strategy in terms of what it is seeking to achieve. It is no longer attempting to merely belatedly copy its rivals, but is instead seeking to go back to its roots in terms of offering good value products from local suppliers, many of which are owned by Morrisons itself. Although a relatively simple idea, this approach served Morrisons well in previous years and, looking ahead to next year, is expected to make a positive impact on the company’s bottom line alongside efficiencies and a focus on its core operations.
For example, Morrisons is due to post a rise in its earnings of 22% next year and, with its shares trading on a price to earnings (P/E) ratio of 15.4, this equates to a price to earnings growth (PEG) ratio of just 0.6. This indicates that its shares could deliver an upbeat performance in 2016 and, with the UK economic outlook continuing to be relatively strong, buying Morrisons now seems to be a sound move.
Of course, Morrisons is not the only stock which could be worth buying at the moment. For example, shares of animal feed distributor NWF Group (LSE: NWF) have soared by 48% in 2015. Despite this, they still trade on a relatively low P/E of 13.7, although with only low-single digit earnings growth forecast for the next two years, NWF’s PEG ratio of 3.7 does not hold the same appeal as that of Morrisons.
Still, with NWF yielding 3.1% from a dividend covered 3.4 times by profit, it has considerable income appeal. However, with Morrisons yielding 3.7% from a dividend which is covered twice by profit, it remains the more appealing income option.
Similarly, Majestic Wine (LSE: MJW) could prove to be a sound purchase after a very challenging period which has seen the wine warehouse’s bottom line fall by 11% last year, with a further decline in earnings of 17% being forecast for the current year.
As a result of this, Majestic Wine’s share price has fallen by 19% since the turn of the year, although its rating remains rather high as evidenced by a P/E ratio of 19.1. With net profit forecast to rise by 20% next year, though, Majestic Wine has a PEG ratio of 0.95 and this indicates that there is capital gain potential on offer over the medium term. Furthermore, with dividends due to double next year, Majestic Wine could become an excellent income play, although with a forward yield of 2.6%, Morrisons remains a better income, value and growth play.
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Peter Stephens owns shares of Morrisons. The Motley Fool UK has recommended Majestic Wine. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.