Stock market crash: why I’d buy the Tesco share price

Following this year’s stock market crash, the Tesco share price looks cheap compared to the company’s long-term potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Tesco (LSE: TSCO) share price plunged in the recent stock market crash. Since then, investor sentiment towards the retailer has remained depressed.

However, I think this could be an excellent opportunity to snap up some discounted shares in this retail giant. Today I’m going to explain why.

Tesco share price on offer

Tesco is one of the few companies that has seen an increase in sales during a coronavirus crisis. The business supplied the UK throughout the situation. Despite coming under a tremendous amount of pressure, the retailer ensured the country didn’t run out of food.

To meet booming demand, Tesco has also been on a hiring spree. It recently announced the hiring of 16,000 new full-time employees to help meet the increased demand for online delivery.

The group is perfectly placed to benefit from the growing online demand from customers. Its massive store estate, warehouses and distribution network, are second to none among UK retailers. Ocado‘s robotic warehouses might have made headlines, but Tesco’s advantage over the rest of the industry is its size.

These competitive advantages allow the company to earn attractive profit margins. It recently hit a multi-year goal to increase operating profit margins to 4%. In comparison, despite the buzz surrounding the business, Ocado is still loss-making. In the UK’s viciously competitive food retail market, Tesco stands out as being able to offer prices competitors can’t match and still earn a profit.

Stock market crash bargain

The company’s competitive advantages suggest to me that the Tesco share price could be an excellent long-term investment. While the firm is facing competition from upstarts like Ocado and online retail giant Amazon, Tesco controls nearly a third of the UK retail market.

Thanks to the company’s size and brand recognition, I think it can maintain this position in the market for decades to come.

After this year’s stock market crash, the Tesco share price is trading around 10% below its 52-week high. I think this could be an excellent opportunity for investors to snap up a share of the retailer at a discount price.

Indeed, while the stock has languished this year, as noted above, the company’s underlying business has prospered. This suggests the shares offer a wide margin of safety at current levels.

Unlike other FTSE 100 stocks, Tesco has also stood by its dividend. The stock currently offers a dividend yield of 4.2%, which looks attractive in the current interest rate environment. It’s even higher than the FTSE 100 average of around 3.6%.

As such, investors who are looking for a stock market crash bargain could do well to take a closer look at the Tesco share price. The company’s competitive advantages have helped it weather the coronavirus storm and should put it on track to generate large total returns for investors in the long run.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tesco and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »