What You Were Buying Last Week: Tesco PLC

One 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.

Huge mistake

Quoting Warren Buffet in connection with Tesco (LSE: TSCO) might be considered a bit dubious these days. After buying heavily into the supermarket giant in 2012,  following its first profit warning (and when its share price plunged 16%), the Sage of Omaha recently admitted that he’d made a “huge mistake” with Tesco.

Andtsco.graph “huge” is the right word. Over the course of the past year the value of Mr Buffett’s stake in Tesco has shrunk by more than £560m (over $900m), as the supermarket’s share price has almost halved.

The most recent drop was caused by Tesco’s admission on 22 September that it had overstated its half-year profit guidance by £250m. 

In the wake of the admission five senior managers, including UK managing director Chris Bush and commercial director Kevin Grace, have now been suspended, and the Financial Conduct Authority (FCA) has initiated a full-scale investigation into what happened. 

Reasons to be fearful

There’s no doubt that a lot of investors are now fearful about Tesco’s prospects as an investment. And there are plenty enough reasons to be fearful. The company has really lost its way over the past few years — revenues and market share  have been falling in the face of stiff competition, both from discounters Aldi and Lidl and premium retailer Waitrose, and the company was forced to savagely slash its precious dividend to fund a war chest. 

Having a new CEO in place is definitely a good thing, but it will take time for Dave Lewis to make any real impact. And it’ll also take time for Lewis’s new board appointees — Alan Stewart, headhunted  from Marks & Spencer to be Tesco’s new finance director, plus Mikael Ohlsson, ex-CEO of Ikea, and Richard Cousins, former head of catering giant Compass, who are being brought in as non-executive directors from the start of November — to get to grips with the mammoth turnaround task that faces them.

So, once the relief at having some new blood in the boardroom has worn off, the share price might drop yet further to reflect the uncertainty of the outcome.

Maybe this time

But if Buffet’s oft-quoted mantra about fear and greed is correct, with the market so fearful, roundabout now may be the right time to buy. And that’s exactly what a lot of customers of the Motley Fool’s ShareDealing service have been doing. They put Tesco firmly in the number 1 spot in the latest “Top Ten Buys” list*, with three times as many people buying Tesco as bought the second-placed company (although whether Warren Buffet will follow his own advice, and ‘average down’, remains to be seen).

Maybe this time the buyers will win. New CEO Dave Lewis (and anyone he brings to the boardroom table) has the huge advantage of simply not having been there when everything went wrong — something the market should react to positively — so long as he delivers, of course. 

Under pressure

And just having a finance director should provide some very-much-needed reassurance for investors, following the revelation that no-one had actually been doing the job for almost six months, since Laurie McIlwee’s resignation on 4 April. 

There might also be a new chairman, too, with Sir Richard Broadbent coming under pressure to follow Philip Clarke in departing from the company.

Having new people in key positions is only the start, of course, but it’s a good start.

Or maybe it’ll be déjà vu all over again. Tesco has been at or near the top of the Sharedealing service’s ‘Top Ten Buys’ list on numerous occasions over the past few months, no doubt prompted each time by the belief that things surely couldn’t get any worse. Yet things did exactly that each and every time.

Maybe this time will be different. But whatever anyone else has been doing, only you can make the decision to buy.

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Jon Wallis owns shares of Tesco. The Motley Fool UK 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.