J Sainsbury (LSE: SBRY) is a FTSE 100 income share that continues to languish rather feebly on the ropes.
Bashed up by the discounters Aldi and Lidl and their increasing investment in premium ranges to attract the Footsie firm’s more affluent customers. Hit by the higher-end chains like Waitrose. And struck down by sales cannibalisation in the mid-tier as the likes of Tesco and Morrisons have more effectively tackled the balancing act of implementing heavy discounting with maintaining product quality. It’s why sales have started to sink again, like-for-like revenues (ex fuel) were down 1.1% in the most recent quarter.
Dodge the bullet
Sainsbury’s has sought to transform its fortunes by merging with Asda, but the move appears to have been killed off already by the competition watchdog. The supermarket this week pledged to pass £1bn worth of savings per annum onto shoppers within three years to curry favour, but the planned deal has been panned by quite a number of market commentators — Warwick Business School for one considered the pledge to be neither “verifiable nor credible.”
I don’t care about the low forward P/E ratio of 11.7 times that Sainsbury’s currently sports, nor its bulky 4.3% dividend yield. It has a mountain to climb to turn around its flagging grocery operations, and now that sales at Argos are showing signs of strain as well, there’s little reason to buy into the business right now, in my opinion.
Indeed, with the Competition and Markets Authority scheduled to release its final decision on the planned Asda tie-up on April 30, and Sainsbury’s scheduled to release full-year financials the following day, investors should be braced for a succession of heavy share price reversals in the coming weeks. Sainsbury’s is a firm I think could seriously damage your stocks portfolio and, like BHP, it should be avoided at all costs.
What about this 8% yield?
BHP Group’s (LSE: BHP) share price might not be languishing like that of Sainsbury’s, but it’s a Footsie firm that I also consider to be too high a risk.
I’m not moved by its low valuation, a forward P/E ratio of just 12.7 times, nor its staggering 8.1% corresponding dividend yield. It’s all about the strength of the iron ore market and right now the signals aren’t great.
Iron ore sales to that critical market of China dropped for the first time in almost a decade in 2018, down 1% to 1.064bn tonnes as the country’s slowing economy dented demand. And it looks likely that imports of the steelmaking ingredient should continue to fall given the slew of disappointing Chinese manufacturing surveys in the early part of the year. News that iron ore imports fell to a 10-month trough of 83.1m tonnes in February certainly isn’t suggestive of a strong outlook for prices of the bulk commodity.
BHP’s share price has been robust in recent weeks as the Vale tailings dam disaster in Brazil has crimped iron ore shipments. In my opinion, though, the supply/demand outlook remains extremely concerning in the medium term and beyond, and for this reason I’d steer well clear of the mining giant.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.