The Sainsbury’s (LSE: SBRY) share price has plunged over the past few weeks. The sell-off has been so aggressive that, towards the end of last week, the stock hit it’s the lowest level for more than 20 years.
This could be an excellent opportunity for long-term investors who’re willing to look past the short-term uncertainty.
Sainsbury’s share price on offer?
It’s easy to understand why investors have been rushing to sell their holdings in Sainsbury’s. It’s becoming increasingly clear the coronavirus will have a significant impact on the global economy. Few businesses are unlikely to escape unscathed, but some are better positioned than others to survive the storm.
Sainsbury’s is one of them. People will always need to eat and drink and, as one of the country’s largest retailers, this should ensure Sainsbury’s sales hold steady throughout the outbreak.
As we’ve seen in other countries that have already brought in severe restrictions on movements, trips to buy food are still allowed. So, while some shops have been closed entirely, companies like Sainsbury’s and its peer, Morrisons (LSE: MRW) shouldn’t see a significant drop off in demand.
As such, now could be an excellent time to make the most of the current market panic to buy a share in one of these two retail giants.
After recent declines, the Sainsbury’s share price is currently dealing at a price-to-earnings (P/E) ratio of 9.4. That’s around a third below the company’s long-run average valuation, which is in the mid-teens.
On top of this, shares in the company also support a dividend yield of 5.8%. This looks extremely attractive in the current interest rate environment. The payout is covered 1.8 times by earnings, which suggests it’s secure for the time being and, as mentioned above, it’s unlikely sales will fall substantially in the current pandemic.
Like Sainsbury’s, Morrisons also looks well placed to weather the current situation. However, so far, shares in the business seem to be holding up relatively well. The stock has lost around a fifth over the past few months. Even after this decline, it’s still above the lows printed in 2015, when the business was in crisis.
Since then, the company has undergone a massive restructuring programme, slashed costs, re-built its balance sheet and restored its dividend. These actions suggest the business is now strong enough to withstand anything the world throws at it. Therefore, now could be the time to take advantage of recent uncertainty and buy the stock.
The shares are dealing at a P/E of 13.1 and support a yield of 5.4%. That’s a bit more expensive than Sainsbury’s, but Morrisons has a stronger balance sheet. So, the premium valuation seems justified.
Morrisons’ net gearing, the company’s ratio of net debt to shareholder equity, is 55%. Sainsbury’s is around 71%.
Overall, while uncertainty grips the rest of the market, these two retailers could be safe havens for investors seeking a bargain in uncertain times.
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Rupert Hargreaves owns no share 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.