Tesco (LSE: TSCO) is a nicely defensive stock. And that’s helped hold back the ravages of the 2020 stock market crash. While the FTSE 100 is down 20% year-to-date, the Tesco share price has fallen by only around half that. That’s far from the best performance in the market, as a number of prices have held steady or even gained. But there have been some intriguing developments affecting Tesco of late.
But first, something that might be controversial. Everyone has been talking of the pain being suffered by our retailers during the lockdown. And they’re right, of course. But looking to the bigger picture, I see the crunch as doing some long-term good.
Tesco share price set to rise?
The simple truth is that we are changing the way be buy and sell stuff. It’s increasingly about online selling these days, and that’s by no means a new trend. But it’s been taking its time to grow; traditional shops are lagging behind the curve and many are struggling to keep up. But now, the pandemic is giving us a big kick in the right direction. Those making the transition strongly suddenly have an even bigger advantage, while many of the lingerers will not linger for much longer. And the economy’s capital allocation will surely become more efficient. Short-term pain, long-term gain. Hopefully for the Tesco share price.
Anyway, back to those recent developments. I was surprised and encouraged to read about the latest retail statistics from the Office for National Statistics (ONS). Not only did retail sales rebound in July, they rose above February’s pre-lockdown level. Meanwhile, UK stocks still have some way to go for recovery, and the lag could provide us with some nice share buys. Much of that retail jump consists of online sales.
Tesco announces 16,000 new jobs
The next bit of news concerns Tesco directly. While firms around the country shed jobs and lay off workers, Tesco is creating 16,000 new jobs. And it’s all down to what it called “exceptional growth” in online selling. Among the new hires, the company intends to take on around 10,000 pickers to fulfil customer orders, and 3,000 new drivers. The Tesco share price didn’t really respond to the news, but it’s early days.
Tesco’s online business now accounts for 16% of sales, up from 9% at the start of the year. It’s set to be worth around £5.5bn in 2020, up from £3.3bn last year. And 16% is still only just scratching the surface, with plenty of potential growth still to come.
Competition fears receding
My main fears for the Tesco share price were that it could suffer from tighter margins from having to deal with increasing competition. Those concerns are fading, as the competition is essentially coming from Lidl and Aldi – the rest of the sector is not taking market share from Tesco. But neither of those offers any online selling at all.
Overall, I think Tesco is in good shape now. It’s financially very stable, is a serious cash cow, and its progressive dividends look increasingly attractive. I rate Tesco as a buy for long-term income.
Alan Oscroft 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.