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I reckon the Morrisons share price could smash the FTSE 100 and Sainsbury’s in 2019

One of the biggest investment surprises of recent years has been the recovery of supermarket stocks, with Tesco, Sainsbury’s (LSE: SBRY) and Morrisons (LSE: MRW) all rallying after years of being left on the shelf.

Chain reaction 

This remains a sector under siege, primarily from German discounters Aldi and Lidl, but also from the impact of falling real-term wages on shoppers’ pockets and, of course, Brexit. Yet the big guns have battled on despite wafer-thin margins, sporadic price wars, changing shopping habits, online competition, and falling market share.

The Sainsbury’s share price is up 17% in the last year, against a near-10% drop on the FTSE 100 over the same period. Morrisons has done well too, rising 7% over the past 12 months, an impressive performance given troubles elsewhere.

This growth comes despite both being hit hard in recent turbulence, falling around 10% in the last month, which some may see as a buying opportunity.

Ringing tills

Supermarkets are entering the vital Christmas trading period and are in need of a seasonal lift, as the latest report from Kantar Worldpanel shows them growing at the slowest rate since March 2017, as they get caught up in the general retail gloom.

Grocery sales in the 12 weeks to 2 December slowed to 2%, down from 2.6%, 3.2%, and 3.8% in the past three updates. Colder weather was partly to blame (the hot World Cup summer now a distant memory) with sales at Sainsbury’s falling 0.2%, with predictable consequences for its share price. There was better news for Morrisons, which grew 0.5%, despite a strong comparative last year.

Festive fun

Christmas is coming and the good news is that Kantar reckons we are set for a record-breaking festive season with spending to hit £10bn over December. Mintel reckons spending will rise 4% this December compared to last year, with food sales predicted to rise 3.3% to £18.6bn. Although more shopping will be done online, non-food retailers will bear the brunt of this.

Sainsbury’s has seen its market share fall from 16.3% to 15.8% over the last year, although Peter Stephens remains a fan. But again, Morrisons did better. Its market share dipped only slightly, from 15.3% to 15.1%. With the group posting 25 consecutive periods of growth, now could be a good time to buy.

Asda price

Investors in Sainsbury’s face further uncertainty, as we await the Competition & Market Authority’s verdict on the Asda merger. The next stage has been pushed back, possibly into early February, so we will need to be patient. City analysts do expect a small pick-up in the group’s earnings per share, which should grow 1% in 2019, and 3% in 2020. By then, the yield should hit 3.7%, with a valuation of 14 times earnings. These are reasonable numbers, although I can’t get that excited about them.

Morrisons is more expensive, trading at a forecast 15.9 times earnings for 2020, while yielding just 3.1%. However, forecast earnings growth looks much more impressive at 8% and 9% over the next couple of years which, if correct, will continue its recent strong growth record. That’s why I reckon Morrisons tastes better than Sainsbury’s right now.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.