What You Were Buying Last Week: Tesco PLC

tesco2One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” – or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Downhill all the way

Tesco (LSE: TSCO) has had a perfectly dreadful year so far. Barring a few intermittent up-ticks, its been downhill all the way, with the supermarket’s share price sliding 27% . Extend the range to this time last year and the fall is a whopping 34.5%.  Not even Tesco’s massive yield cushions that sort of drop.

So much seems to be going wrong for Tesco. On one side it’s losing market share to the discount chains Aldi and Lidl, forcing it to slash prices, narrowing its margins. On the other side, it’s also losing customers to premium stores like Waitrose, and so needs to appeal to less price-sensitive consumers. Trying to be “all things to all shoppers” — a feat that Tesco had appeared to pull off with consummate ease  for many years — is now proving to be extremely tricky.

Too tricky

It’s certainly been too tricky for some of the senior management. Firstly, Finance Director Laurie McIlwee resigned from the board in April, apparently “by mutual agreement”, although it was revealed that he would be staying on at the company for six months, to ensure a smooth transition for his successor.

Then in July Tesco announced that its CEO, Philip Clarke, would also leaving (but, in this case, not of his own volition) to be replaced at the start of October by Dave Lewis, who’s currently president of the ‘personal care’ division Unilever, in charge of products like Dove, Radox and Lynx.  

So what might have persuaded customers of The Motley Fool ShareDealing Service to put Tesco in the number two slot in our latest “Top Ten Buys” list*?

Famous last words

Well, it may be a case of “surely things can’t get any worse?“. Of course, that sort of thought often immediately precedes things doing exactly that, but there may be a kernel of truth in it for Tesco.

With Clarke still at the helm, and the shadow of Sir Terry Leahy looming large over Clarke’s shoulder, it was hard to envisage anything radically different happening — it always seemed like Tesco was doing more, or less, of much the same, and to no positive effect over recent months (if not years). Incoming CEO Dave Lewis won’t be saddled with the same strategic baggage as his predecessor, and shareholders will be hoping he can have something like  “the Lynx effect” on shoppers.  

A turning point

Mr Lewis won’t be psychologically wedded to previous decisions, which should help him make the tough choices that will be necessary to perform the sort of turnaround required at Tesco. He also brings a track-record of success in emerging markets — 60% of the highly profitable ‘personal care’ business he’s run at Unilever is based in them — which will be invaluable if Tesco is to grow its Asian operations.

Indeed, just the fact that Clarke is out and someone else — pretty much anyone else — will be in charge may be enough to turn market sentiment positive towards the beleaguered supermarket chain. It may also improve morale within the company, which will be a vital element in transforming the company’s fortunes (and those of its shareholders, too). After all, every little helps.

Obviously, Mr Lewis — and the rest of the management and staff — will have to actually deliver results, and do so over a sustained period. But with Tesco’s share price languishing at its lowest level for over a decade, now might just be somewhere near the turning point.

Of course, no matter what other people were doing last week, only you can decide if Tesco actually is a ‘buy’ right now.

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Jon Wallis owns shares of Tesco. The Motley Fool owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

*based on aggregate data from The Motley Fool ShareDealing Service.