The Motley Fool

One FTSE 100 stock I’d sell today and one I’d buy

One of the worst performing stocks in the FTSE 100 this year is takeaway delivery app Just Eat (LSE: JE). Year-to-date, the shares have declined by 16.2%, underperforming the FTSE 100 by around 10% excluding dividends. 

At the other end of the spectrum is retailer J Sainsbury (LSE: SBRY), which has seen its shares rise 33% so far in 2018. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

These two businesses couldn’t be more different, and the performance gap between the two is surprising. Old-fashioned, bricks and mortar Sainsbury’s has outperformed Just Eat, which is at the cutting edge of the technological revolution, by nearly 50% this year.

However, I believe the Sainsbury’s time in the sun is now coming to an end and it could be time for investors to reinvest their profits from this business into underperforming Just Eat.

Switch positions

The reason why I think Just Eat is a better buy today is simple: valuation.

Investors have rushed to buy shares in Sainsbury’s as the company’s recovery has gained traction over the past 12 months. Management’s decision to try and merge the business with ASDA to create a UK retail behemoth has also helped improve sentiment. But the company’s underlying growth has not kept up with investor optimism. Analysts have pencilled in an earnings per share (EPS) expansion of 13% for 2019, which leaves the stock trading at a forward P/E of 15.1.

As my Foolish colleague Alan Oscroft recently noted, the UK supermarket sector is changing rapidly. Discounters Aldi and Lidl only have relatively small market shares and continue to expand fast, while larger players, such as Tesco are investing hundreds of millions of pounds to lure shoppers back into their stores.

Sainsbury’s has proven over the past few years that it can compete, but a valuation of 15 times forward earnings does not leave much room for disappointment. If earnings growth stalls, the shares could quickly erase all of this year’s gains.

A price worth paying 

Just Eat is also trading at a premium valuation (35 times forward earnings), but in my view, the firm deserves a higher rating. EPS are projected to expand 141% this year and 22% in 2019, giving a PEG ratio of 0.9 (anything below one indicates growth at a reasonable price). Meanwhile, the company is expanding overseas.

The cost of opening new offices around the world, as well as increasing investment here in the UK to improve its customer offering, has hurt investor sentiment. I believe the market is overreacting. While earnings may take a hit in the near term, the investment should pay for itself over the long term. 

Time to buy 

With this being the case, I believe recent weakness could present an excellent opportunity for long-term investors to buy into the Just Eat growth story.

Looking past short-term volatility, I believe the company’s strong position in the UK takeaway market is worth paying a premium for. And, unlike Sainsbury’s, Just Eat’s income is not at risk from low-cost German disruptors.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Just Eat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.