The Motley Fool

The Tesco share price is down 10% in 2020. Here’s why it’s a buy for me

Image source: Getty Images

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.