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FTSE 100 crash: Here is my verdict on supermarket stocks

In light of the Covid-19 pandemic and the related lockdown, the FTSE 100 crashed. Defensive stocks are traditional top picks during difficult times like these. These kinds of stocks, include food retailers – after all, everyone has to eat. The big question is, which one to invest in?

FTSE 100

Morrisons (LSE:MRW), Sainsbury (LSE:SBRY), and Tesco (LSE:TSCO) are three of the big four supermarkets in the UK. Asda is the fourth. 

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Morrisons

Prior to the FTSE 100 crash, I predicted a tough year ahead for Morrisons. Full-year results revealed an over 1% decrease in revenue, although it also had an increase of 3% in profits.

First-quarter trading results released earlier this week saw a 5.7% increase in like-for-like sales, excluding fuel. Fuel sales dropped nearly 4%, which was to be expected with the government lockdown. Online weekly home delivery slots have more than doubled, which is also not surprising in these unusual circumstances. 

The market crash has not affected Morrison’s share price much. MRW’s current price is higher than pre-crash levels, close to 200p per share. It decided not to scrap its dividend, which is positive. With a dividend yield of close to 4%, it might be one to consider.

Sainsbury

Sainsbury’s share price has nearly recovered to pre-crash levels. The last few years have been tough, as the company has been losing market share. Profit levels and dividends per share have also been decreasing for the past few years.

In April, Sainsbury announced its most recent full-year results. Sales were at a similar level to the previous year at over £32bn, however, pre-tax profit fell yet again, this time by 2%. Sainsbury’s demand has normalised as the lockdown has worn on, with Argos reporting less demand as it is unable to deliver and install certain products. 

A positive factor for me is SBRY’s juicy 5.7% dividend yield. This will tempt some into investing in this FTSE 100 stalwart, however, Sainsbury is not for me. Its consistently decreasing profit level is not too much of a concern, nor is its high price-to-earnings ratio of over 40. My main concern is that the competition just seems to be better at what they are doing. With the German supermarkets Aldi and Lidl showing signs of joining the online delivery market, Sainsbury’s future could be bumpy.

Tesco

Tesco has lost close to 8% since the beginning of 2020, compared to the FTSE 100 losing 25%. It announced impressive full-year figures earlier this month. A healthy increase in profit, revenue, and dividend per share were the main takeaways for me. It also announced debt was down, and customer satisfaction rates were up.

In light of the pandemic, Tesco has had to incur extra costs to take on extra staff. I feel this will be recouped by a reduction in business rates in the short term, as well as an eventual return to normal operating conditions in the months ahead. 

Of the three supermarkets discussed, Tesco is my number-one pick. With a 30% market share, it also has a vast store network and extended convenience store business along with ownership of wholesaler Booker. Its size, performance, and growth potential, including furthering its already impressive online offering, also contribute to my verdict. 

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Jabran Khan has no position in any 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.