The Tesco (LSE: TSCO) share price surge caught me off guard. I just didn’t see it coming.

If Hollywood turned the UK grocery sector into a gangster movie, Tesco would be Mr Big, with young guns Aldi and Lidl eyeing up its territory. Yet somehow, Mr Big stood his ground.

Today, Tesco’s position looks pretty impregnable, with market share of 28.5% the highest since 2016. That’s a satisfactory ending for Tesco investors. Especially with the shares up 24% over the last year, and 48% over five years. Dividends are on top, of course.

Sadly, I missed out on all of that. I just didn’t think Tesco could do it. So can the shares climb from here?

This is a top FTSE 100 dividend growth stock

Let’s look at the fundamentals. Tesco’s current price-to-earnings ratio’s just over 15, squarely in line with the FTSE 100 average. 

While this isn’t alarming, it isn’t particularly cheap. And when it comes to dividends, the yield’s dipped to 3.28%, just below the FTSE 100 average of 3.5%. For income-focused investors, that might be a touch underwhelming.

I suspect I won’t be the only investor looking at those numbers and thinking the fun’s over. That may explain the lukewarm market response to a positive Christmas trading period. Tesco reported a 3.7% sales increase across the UK and Republic of Ireland, covering the six weeks to 4 January. This marked an improvement from 2.8% in Q3. Sales grew even faster at its Central Europe’s operations, up 4.7%. 

The board now expects full-year retail adjusted operating profit of £2.9bn, in line with guidance upgraded in October.

CEO Ken Murphy hailed “our biggest ever Christmas, with continued market share growth and switching gains”. He pinned this on Tesco’s strategy of being the UK’s cheapest full-line grocer for over two years, as well as introducing new or improved products across its ranges.

The supermarket war isn’t won yet

Yet Tesco shares slipped 1.5% on the day and have idled since. This may simply be profit taking. Investors have done well out of Tesco. But it may also suggest they see better opportunities elsewhere.

If I held Tesco shares, I’d stick with them. It would be rude not to frankly, given how well they’ve done. But would I buy? That’s a tricky one. Firstly, it feels like I’ve missed my best moment. Second, all the other grocers are still gunning for Mr Big.

Tesco employs more than 300,000 and will take a hit from the government’s £25bn raid on employers’ National Insurance, plus its inflation-busting Minimum Wage increase. It already operates on wafer-thin margins.

If inflation falls, that may soften the blow. Plus of course, its rival grocers have to face the same issue. 

I won’t buy Tesco shares today. They look fully valued while the UK economy remains bumpy, making shoppers feel poorer. It has a lot to live up to. I’ll go shopping for shares elsewhere.

The post Is this as good as it gets for the red-hot Tesco share price?  appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. 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.

Some FTSE 100 stocks seem to be a little low on investor love. I can’t help thinking Sainsbury’s (LSE: SBRY) is one of them.

As the UK’s second biggest grocery chain, it lives in the shadow of sector leader Tesco. It’s increased market share faster than any rival over the last year but today’s 15.9% remains well short of Tesco’s 28.1%.

Sainsbury’s has Asda, Aldi and Lidl breathing down its neck, with respective shares of 12.3%, 10.3% and 7.4% respectively. It’s not an easy place to be.

The share price is suddenly on the up

Also, there’s a wider feeling that the UK grocery sector’s so competitive, investors can struggle to find value here. Sainsbury’s shares will have their good times and bad times, but will they ever smash it?

Yet suddenly they’ve jumped 15.83% in the last month. They’re still down 5.72% over one year, but even so. What’s happening?

On 7 November, the board reiterated guidance for strong underlying full-year profit growth, helped by improving grocery volumes and a stronger second-half performance from Argos. Full-year free cash flow generation should be strong too, which bodes well for dividend growth. Today’s trailing yield of 4.74% is forecast to hit 4.82% next year and 5.14% in 2026.

That easily beats the Tesco traiing yield of 3.23%, although there’s a reason why that’s relatively low. The Tesco share price has smashed it over the last year, climbing 28.72%. It’s up a blockbuster 64.24% over two (Sainsbury’s rose 26.04% over the latter timescale).

Sainsbury’s is cheaper though, trading at a price-to-earnings ratio of 12.67 times earnings. Tesco’s P/E has climbed to 15.72%. Given Tesco’s stellar run, now may be the time to invest in Sainsbury’s instead.

I think Tesco shares have run their course for now

Last month, RBC Capital Markets took that exact view. It labelled Sainsbury’s Outperform with a 300p price target. If correct, that’s up 8.45% from today’s 276.6p

RBC praised Sainsbury’s for resetting its price/value proposition, and generating more than £1bn of cost savings in just three years. It expects more of the same over the next three years. Like me, it thinks the Sainsbury’s valuation looks “undemanding”.

RBC slapped a Sector Perform rating on Tesco with a 375p price target, broadly in line with today’s 374.4p. It said Tesco may also struggle to boost its market share from here. It’s not easy being top dog.

Personally, I’d expect the big grocery chains to have a tough year, as recession fears return. Labour’s Budget National Insurance hikes will hit the sector hard. Tesco employs more than 300,000 and Sainsbury’s more than 150,000. The 6.7% hike to the minimum wage won’t help. Nor will sticky inflation, now forecast to hit 3% next year.

So I was curious to see that Kantar reckons UK supermarket sales are set to surpass £13bn in December for the first time. I’ve underrated Sainsbury’s. Now I’ll now consider showing it some love and adding the shares to my portfolio in January.

The post Up 15% in a month! Is it time I showed this overlooked FTSE value share some love? appeared first on The Motley Fool UK.

More reading

• 2 FTSE 100 shares that could outperform this year regardless of geopolitics

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. 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.

A year ago, I was seriously considering buying Tesco (LSE: TSCO) shares. This was before the Ukraine war, the energy price shock, and the cost-of-living crisis.

My biggest worry at the time was whether the economy was bouncing back fast enough from Covid lockdowns, amid ongoing supply shortages. Boris Johnson was Prime Minister, and Rishi Sunak Chancellor. It was a different world.

An awful lot has happened since then, and it has hit Tesco shares hard. They have fallen 21.11% in the last 12 months. By contrast, the FTSE 100 is down just 3.08% over the same period.

Lucky I didn’t buy Tesco shares

I’m glad I didn’t buy Tesco shares back then. The stock currently yields 5.04%. So even after reinvesting my dividend payout, I would still be sitting on a 16.07% loss.

If I had invested £1,000 a year ago, I would have £839.30 today. That’s not a disaster, but it’s not great either.

Naturally, Tesco has been hit hard by the cost-of-living crisis. While the group’s costs have increased, shoppers have less money. The £16bn FTSE 100 company may be the UK’s biggest grocer, with a 27% market share, but it lacks pricing power in a competitive market, with Aldi and Lidl sniffing.

Tesco’s profit margins have always been tight, and currently stand at just 4.2%. That is now forecast to shrink to a wafer-thin 2.9%. Tough times indeed.

What’s past is past. I dodged a bullet in 2021, the big question now is this. Should I buy Tesco shares today?

Food may be a consumer staple, which should theoretically underpin sales in hard times, but UK food retail is not a happy place right now. Credit Suisse has trimmed its target price for Tesco, from 292p to 238p. Today, the stock trades at 216p, which doesn’t leave much of an uplift.

Tesco has also been hit by the weak pound, which has driven up import costs. Sterling may strengthen with Rishi Sunak as PM, but there is still a long way to go.

Companies that operate in a competitive market cannot afford to stand still. Tesco needs to invest in its online operations, boost automation, and minimise delivery disruption. All this costs money, and will squeeze margins further.

It’s on my Christmas wish list

The peak Christmas period is coming, but so are peak electricity bills, and shoppers won’t feel any richer come the festive period. Tesco sees full-year profits “at the lower end of guidance”, with retail adjusted operating profit falling from last year’s £2.65bn to between £2.4bn and £2.5bn.

The result is that Tesco shares trade at 9.7 times earnings. So the entry valuation looks attractive, offsetting many of the risks. Its current yield is also covered twice, which gives me confidence that the dividend will be maintained, and increased, too.

That dividend should tide me over until the shares recover. I recently bought Persimmon and I’m lining up Rolls-Royce as my next buy, when I have the money. I’m now adding Tesco to my watchlist, and hope to buy it before Christmas.

Tesco shares may take some years to recover, but I will reinvest my dividends to pick up more stock while I wait.

The post If I’d invested £1k in Tesco shares a year ago, this is what I’d have now appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

Harvey Jones holds shares in Persimmon. 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.

Would I buy Tesco shares for my own portfolio today? I would, if I was looking to boost my exposure to defensive UK stocks. Here are three reasons why.

Directors have been buying shares

One thing that stands out to me here is that directors at Tesco have been buying stock recently. On 5 October, the CEO, the CFO, and the chairman all snapped up shares. Then, a few days later, board member Byron Grote purchased stock. Combined, these four insiders bought around £250,000 worth of Tesco shares.

I see this buying activity as a positive development. Insiders have more information on a company than anyone else. They don’t buy company stock if they expect it to go down. These purchases indicate that those within the business believe the stock offers value right now.

Tesco is buying back its own shares

Another thing to like about Tesco is the fact the company is buying back its own shares. Previously, it announced a £750m share buyback programme and, last week, it gave HSBC the green light to repurchase £100m worth of shares on its behalf, as part of this overall programme. This also suggests management believes the stock offers value right now.

Share buybacks are positive because they reduce the number of shares on issue, which leads to higher earnings per share. This can help support a company’s share price.

There’s a big dividend on offer

Finally, there’s the big dividend yield. After the recent share price fall, Tesco’s prospective yield now stands at around 5.1%. I think that’s hard to ignore in the current environment. Dividend coverage (the ratio of earnings to dividends) is solid at around two times, which indicates that the chances of a dividend cut are quite low.

On the topic of dividends, it’s worth pointing out that Tesco recently hiked its interim payout by 20.3%. This large increase indicates that management is confident about the future.

Attractive risk/reward

Now, of course, there are risks to consider here. One is competition from Aldi and Lidl. With consumers looking to cut costs, Tesco could potentially lose market share to the discount players in the years ahead.

Another risk is debt. At the end of February, Tesco had net debt of £10.5bn on its balance sheet. This is not ideal in a rising interest rate environment. Higher interest payments could hit profits.

However, with the stock currently trading on a forward-looking P/E ratio of less than 10, and offering a 5%+ dividend yield, I like the risk/reward proposition here. So I’d be comfortable taking a small position in Tesco today.

The post 3 reasons I’d buy Tesco shares today appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.

Now may look like a bad time to buy FTSE 100 shares, but I beg to differ. Today’s turmoil offers a brilliant buying opportunity, but with three provisos.

At The Motley Fool, we never like to waste a stock market crash. Or even a dip, like the one the FTSE 100 is suffering at the moment. 

The index of top UK shares has been relatively resilient in 2022. It is down 8.09% year-to-date while the US S&P 500 has crashed 23.49%. Yet the FTSE 100’s relatively smaller drop is still throwing up lots of share buying opportunities for me.

FTSE 100 offers me great value

When an individual stock falls sharply in value, I tread carefully. Usually that’s due to a bad piece of company news, such as a profit warning, reduced dividend, or some other nasty that weighs on its prospects.

When the whole FTSE 100 falls, it’s a different matter, as good companies are sold off with the bad. Investors are fleeing risk right now, as today’s problems aren’t going away soon. Post-Covid supply shortages, war in Ukraine, and (crucially) rising interest rates are combining to destroy investor sentiment.

These problems will hit some sectors harder than others. Housebuilders such as Barratt Developments will suffer as rising mortgage rates hit demand. So will asset managers such as Schroders, as markets go haywire. Supermarkets like Sainsbury’s are also suffering, as customers buy less or trade down.

By contrast, luxury goods maker Burberry Group is on safer ground as the wealthy are less affected by the cost-of-living crisis. So is spirits maker Diageo, as its customers need a stiff drink right now.

I’m focusing my attention on companies that have been hit hardest, as their share prices have fallen most. They offer a tempting combo of dirt-cheap valuations and astonishing yields. I’ve just taken a punt on housebuilder Persimmon. I’m worried I may regret this, but found its 19.49% yield and valuation of just 4.81 times earnings too ridiculous to resist.

I’m now caught between buying Tesco for long-term income and growth, or investing in Rolls-Royce shares in the hope they will lead the charge when markets recover.

Three ways I reduce risk

The big risk is that markets could fall further from here, but I’m happy to take that chance for three reasons. First, it’s impossible to buy right at the bottom of the market. Today’s lower prices are good enough for me.

Second, I’m building a balanced portfolio of FTSE 100 stocks on top of that, to turbo-charge my growth. I aim to hold at least a dozen, so if one or two fail to deliver, hopefully the others should more than compensate.

Finally, and most important, I’m only buying shares that I plan to hold for the long term. That means at least 20 years, which should give plenty of time for the FTSE 100 to rebound from its current troubles.

Sometimes I have to steel myself to click the ‘buy’ button but if I wait until after the FTSE 100 has recovered, then the same stocks should cost a lot more than they do today.

The post I don’t care if FTSE 100 shares fall further, I’m buying them today appeared first on The Motley Fool UK.

More reading

• Meet the 9.6%-yielding income share that could keep growing its payout!
• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Burberry, Diageo, Schroders (Non-Voting) and 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.

Tesco (LSE: TSCO) shares have had a bumpy 2022 but now they look like a tempting buy to me. The figure that really jumps out at me is the dividend yield, which is currently 5.4%.

Last time I looked, Tesco was yielding closer to 4%. The most obvious reason for the increase is that its share price has fallen (as have so many other FTSE 100 stocks in these troubled times).

Tesco shares are down 26% over the last six months, although over five years they trade 7.56% higher. As the yield is calculated by dividing the dividend by the share price, that has inevitably pushed it higher. Yet the dividend looks solid, as it is covered exactly twice by earnings.

Tesco shares are at a discount

This year has been tough on the grocery sector. Sainsbury’s has fared even worse. Its share price is down 31% in 12 months, and 30% measured over five years. That makes Tesco look relatively good, and of course it is.

Tesco is still the UK’s biggest grocer, with a market share of 26.9%, according to Kantar. That easily beats second-placed Sainsbury’s at 14.6% and Asda at 14.1%. The cost-of-living crisis has been tough on the big guns, while discounters Aldi and Lidl have continued their inexorable climb.

Earlier this month, Credit Suisse warned there was “no relief in sight” for grocers. They have little scope to pass on inflationary costs to customers, as those on low incomes either trade down or load up in Aldi.

Tesco is better placed than Sainsbury’s, but Credit Suisse still trimmed its target price from 292p to 238p. Today it trades at 173p. So why would I buy it today?

I’m not particularly optimistic about the UK economy. It’s going to be a tough winter. Chancellor Kwasi Kwarteng’s mini-Budget U-turn may have only given us temporary respite. Shoppers don’t have money to throw around.

Tesco’s management has indicated that its earnings may have further to fall, but I think much of the bad news is reflected in today’s valuation. The share price drop has also made Tesco cheaper to pop into my portfolio. It currently trades at just 9.2 times earnings, compared to roughly 14 times across the FTSE 100 as a whole.

I’d invest those dividends for growth

Tesco shares could get even cheaper if I waited, but that’s far from guaranteed. All I know is that they look good value right here, right now.

Also, Tesco gives me a high level of income. I couldn’t beat that 5.4% yield by putting the same money into a savings account at the moment. The sooner I buy the stock, the sooner those dividends start rolling into my portfolio. I would then reinvest them to buy more Tesco shares, taking advantage of today’s low valuation.

Tesco’s sheer size makes it look like a solid bet for long-term income and growth. I’d aim to hold it for 10 or 20 years. At some point, I hope its share price will rebound, and take my stock and reinvested dividends with it. This week, I’m fulfilling a promise I made at the end of last month to buy shares in Persimmon. When I have the cash, I’ll then look to buy Tesco.

The post I’d buy Tesco shares in October to bag their 5.4% yield  appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Sainsbury (J) and 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.

Macroeconomic pressures continue to dampen investor sentiment. And it’s clear to see the impact that it’s having on the UK’s biggest supermarket chain’s share price.

However, I’m contemplating whether this is a chance for me to grab some cheap shares. Let’s find out.

Steady demand

My main attraction to Tesco is the relatively safe nature it provides as a business. The company clearly isn’t immune to the damning effects inflation is having, as we’ve seen. However, regardless of economic conditions, there will always be — to some extent — demand for Tesco’s products. While we’ve seen retail sales tumble this year, food has seen little change.

In its latest results released in June, this is highlighted through the 1.5% growth in UK & ROI sales seen compared to the same period last year. And on a three-year like-for-like basis, sales have grown 9.7%.

What also draws me to Tesco is its geographical diversification. While rising inflation is a common theme across many countries worldwide, the extent of damage is variable. With 9% growth in its central Europe sales year over year, this shows the firm isn’t solely reliant on domestic sales.

What’s also another pull to the stock given the current economic environment is its enticing dividend yield. At the time of writing, this sits at 4.4%. While this is far from inflation-beating, it does offer a greater return than the FTSE 100 average. On top of this, Tesco has paid out to shareholders consistently for the past five years. As a potential investor, this is an encouraging sign.

Budget competition

The obvious threat to Tesco is competition. With the cost-of-living crisis, it’s understandable that consumers will likely turn to cheaper, more affordable stores.

In light of this, yesterday it was revealed that discounter Aldi had overtaken Morrisons to become the fourth-largest UK supermarket.

Research group Kantar said Aldi’s sales rose by nearly a fifth in the 12 weeks to 4 September, giving the German firm a near-10% market share. With the grocery market worth an estimated £131bn, both Aldi and Lidl have a combined 16% slice of it. With costs looking like they’re set to continue to rise, this could spell trouble for Tesco.

The firm has hit back at discounters with its Aldi Price Match and Low Everyday Prices products. For Q1, the overall distribution of these rose 19% year on year. However, with inflation ramping up in Q2, we will have to wait and see just to what extent these moves have deterred shoppers from switching.

Am I buying?

So, is now the time to buy?

Well, despite the hit it’s taken this year, I see Tesco as a solid investment. Despite consumers opting for cheaper alternatives, with its dominant position I think it’s hard to write off the superstore. Its dividend yield is also an added bonus. While its next set of results may provide a better picture of the impacts of inflation, I’d be willing to open a small position in Tesco today.

The post Is now the time to buy Tesco shares? appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

Charlie Keough 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.

July’s UK consumer price index (CPI) came in hotter than expected at 10.1%. This is a 40-year high and has the potential to drive share prices further down as consumers struggle with a cost of living crisis. So, here are five shares I’m considering buying.

Lloyds

As the UK’s biggest lender, I believe Lloyds (LSE: LLOY) shares are a sound choice for my portfolio. It earns its money from the difference in providing and earning interest from loans. This is otherwise known as net interest income.

Interest rates are expected to go as high as 3% by 2024 as the Bank of England tries to combat inflation. As a result, the high street bank should get a top-line boost from higher lending costs, while benefiting from lower interest paid to customers. With enough cash to set aside for bad loan provisions, Lloyds doesn’t need to increase its savings rate to bring in more cash, thus allowing it to increase its profits. This was evident in the company’s latest half-year results, which saw it recording excellent numbers.

It’s worth noting, however, that the majority of its income stems from mortgages. With house prices and mortgage approvals starting to decline, it remains a possibility that Lloyds’ revenue could be impacted. Nonetheless, analysts think that the increase in rates should offset any declines for the time being. In fact, Lloyds stock is rated a buy as its dividend is also expected to increase. It has an average price target of 64.33p, or a 40% upside.

SSE

Energy prices have been the main culprit behind sky-high inflation. That’s because energy prices are at their highest levels since 2009. As such, I think SSE (LSE: SSE) is a share to buy for my portfolio given the circumstances.

When wholesale energy prices go up, energy suppliers increases their rates to cover the extra costs. This has allowed companies like SSE to benefit, with its top and bottom lines seeing modest increases. As a matter of fact, its profit and loss account saw its best numbers in FY22, which is why its shares are up 9% this year.

The latest inflation report shows that energy prices rose 3% on a month-on-month basis. And with a higher price cap expected in October, SSE should benefit from this. After all, its latest trading update indicates that it expects adjusted earnings per share (EPS) of at least £1.20 for FY23. This would bring its EPS to its highest level in five years.

Additionally, its dividend yield of 4.7% is rather modest and is expected to rise given its most recent increase in payout, from 25.5p to 60.2p. SSE shares are rated a moderate buy with an average price target of £20.78.

Unilever

Next on my list is Unilever (LSE: ULVR). Its share price has been rather volatile this year. Nevertheless, it has recovered by 5% since its reported its H1 numbers. Its shares are now only down by 1% on a year-to-date basis.

The fast-moving consumer goods conglomerate produces beauty products and personal care, foods and cleaning agents. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. These are household names and have tremendous pricing power, given the inelastic demand surrounding most of its products. This is strongly reflected in the revised outlook given by CEO Alan Jope, when he improved the firm’s guidance.

Our guidance for underlying sales growth in 2022 was previously at the top end of a range of 4.5% to 6.5%. We now expect underlying sales growth to be above that range, driven by price with some further pressure on volume.

Unilever CEO Alan Jope

Nevertheless, it should be noted that Unilever shares are more of a defensive play to protect from potential downside at the moment. Analysts are forecasting an average price target of £40.81, which only means a potential 3% gain if I were to buy shares now.

Burberry

Burberry (LSE: BRBY) shares are a good inflation hedge, in my opinion. The brand’s status as a luxury retailer allows it to pass on many of its costs to consumers given the nature of its target market. This was confirmed by CFO Julie Brown in its Q1 trading update, with a positive outlook for the company.

The FTSE 100 retailer has benefited from the return of global travel, with a substantial amount of its sales coming from tourists. It saw its like-for-like sales numbers grow by 1% on an annual basis, despite lockdowns in key revenue driver, China. Excluding China, sales figures were actually rather impressive. They were 16% higher in Q1 overall, with EMEIA boasting impressive 47% growth. Moreover, the company’s most profitable products (leather goods and outerwear) also saw double-digit growth.

That being said, I should point out that China remains the firm’s achilles heel for the moment. With its government sticking to its zero-Covid policy, I don’t expect sales figures from that region to see an uptick any time soon. This is why its average price target currently sits at £19.34. Therefore, this is more of a long-term investment with a higher upside once China’s retail sales fully recovers.

Tesco

Last on my shopping list are Tesco shares (LSE: TSCO). Given that its core products are consumer staples, I’m expecting Tesco shares to be robust in a recessionary environment. It’s also been steadily increasing its dividend payouts, which should serve as an added benefit.

As the market leader in the UK supermarket sector with more than a quarter of the market share, I think Tesco will be able to outperform its peers. Its Aldi price match across hundreds of items has been a success so far. According to the last several Kantar grocery reports, the supermarket leader has seen its market share remain relatively robust. It has also managed to outperform most if its competitors with higher sales figures. And its Q1 trading update showed its strength in the industry.

Having said that, sales figures are expected to come in slightly lower for the year. The grocer no longer enjoys the tailwinds of the pandemic and faces slower sales as a result of high inflation. Even so, I still think Tesco can utilise its strong supply chain and relationship with customers to match last year’s stellar performance. Analysts seem to share the same sentiment, rating Tesco shares a strong buy with an average price rating of £3.19.

The post Inflation hits 10.1%! 5 shares to buy now! appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• How to target a million-pound SIPP by investing in UK shares
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• How Lloyds shares could rise to 131p… or sink to 91p
• 2 reasons a stock market crash could be a good thing!

John Choong has positions in Burberry. The Motley Fool UK has recommended Burberry, Lloyds Banking Group, Tesco, and Unilever. 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.

When I compare the Tesco (LSE: TSCO) share price to its UK supermarket peers, it’s actually doing relatively well. Notwithstanding the fact that its 10% down, its competitors are faring much worse. With a higher price-to-earnings (P/E) ratio of 13, Tesco shares may not necessarily scream bargain. Nonetheless, there are positives that warrant a closer at its stock.

As cheap as a meal deal?

For one, Tesco remains the market leader. It boasts more than a quarter of the industry’s market share. This is impressive considering the saturated market in which it operates. Secondly, the most recent Kantar grocery report shows that the grocer managed to grow its market share by 0.2% on a year-on-year (Y/Y) basis, in the 12 weeks to 12 June. More importantly, despite its sales figures taking a 1.1% hit, Tesco still managed to outperform all of its peers, bar Aldi and Lidl.

Tesco’s strength can be attributed to two key reasons, I feel. The first is the success of its Clubcard programme, which encourages repeat purchases through lower prices. The second is the expansion of its bargain line. In its latest Q1 trading update, management mentioned the expansion of its Everyday Low Prices and Aldi Price Match products by 19% (Y/Y).

Tesco can’t ketchup with prices

Kraft Heinz and Tesco can’t seem to agree on how to price its Heinz products. The American company argues that skyrocketing cost has made production more expensive, hence the price increases. But the retailer says that it won’t pass on what it says are unjustifiable price increases to its customers.

As a result, Tesco has stopped stocking Heinz products for the time being. This is in line with trying to keep costs low for consumers while still making a profit. While talks between the two giants are ongoing, some Heinz products have already been made unavailable online. Nevertheless, this isn’t a unique incident. In 2016, Unilever increased its prices too, which resulted in the removal of Marmite, PG Tips, and Pot Noodle from Tesco’s website.

So, will this impact the retailer’s overall sales figures? Well, due to the cost-of-living crisis, management stated that customers are beginning to purchase more own-brands. So, I don’t expect the temporary unavailability of Heinz products to be detrimental, despite many of its products being staples. Having said that, I’ll be monitoring the situation closely, as further disruptions with other suppliers could negatively impact the firm’s top and bottom lines.

Buying back stock

Despite all that, Tesco is in line to achieve the guidance it set out for itself. Additionally, the company decided to put its £750m share buyback programme into effect yesterday. This shows confidence that the current Tesco share price is undervalued.

Taking everything into consideration, I think the shares are reasonably priced, but not a bargain. I’m not a big fan of its slim profit margins (2.5%) that are expected to decline for the foreseeable future, and I don’t see a huge amount of growth in its top line. As such, I won’t be buying Tesco shares for the time being. Instead, I’ll be looking to buy shares that are more resistant to the impact of inflation.

The post Is the current Tesco share price a bargain? appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Sainsbury (J), Tesco, and Unilever. 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.

Yet, trading at 256p, could this fall be an opportunity for me to buy the stock?

Why has the Tesco share price suffered?

Supermarkets tend to perform well during difficult times due to the essential products or services they provide. However, the main reason for the fall is the threat of inflation. With it rising to 9% in the UK for May, customers will be forced to limit their spending and potentially look for cheaper alternatives.

Surging inflation may also see staffing costs rise. With over 350,000 employees, this could have a massive impact on Tesco’s operating costs. With pressures like these, the Tesco share price has been forced down.

Is it time to buy?

So, does this fall present an opportunity to buy? Let’s start by looking at Tesco’s share price valuation. The stock currently trades on a price-to-earnings (P/E) ratio of 13. This is above the benchmark figure of 10. And compared to competitors, such as Sainsbury’s with a P/E of just 7.4, this looks expensive.

However, while this may seem high, as the UK’s largest retailer, Tesco has a competitive advantage over its rivals. The firm has larger purchasing power and because of this can produce lower per-unit costs. Further, it also had a dominant position in the industry with a 27% market share. With inflation continuing to peak in the UK, the stock also offers a sizeable 4.3% dividend yield. For me, these are all tempting factors.

Yet recent times have seen the rise of budget supermarkets such as Aldi and Lidl. And the cost-of-living crisis only intensifies the threat these businesses provide to Tesco. Both low-cost chains saw sales grow by 6% in the 12 weeks to 15 May, whereas the wider market saw overall sales fall by 4%. Should Tesco have to increase prices in line with inflation, this could see more consumers making the switch to these cheaper alternatives. This would no doubt hurt the Tesco share price.

With this said, Tesco still posted good results in its Q1 update earlier this month. Like-for-like UK and ROI sales rose by 1.5% year on year. And over three years, this was a 9.7% rise. The £12.5bn sales figure exceeded pre-Covid results, showing the strong recovery the business has made. And what was also impressive was the 9% sales growth seen in Central Europe for Q1, highlighting the international strength of Tesco. As a potential investor, these are encouraging results.

So, should I buy Tesco? While inflation will pose a threat to the Tesco share price in the months ahead, I think the shares could be a strong addition to my portfolio today. Its Q1 results are impressive. And despite its slightly high valuation, I think its competitive advantage justifies this. Its dividend yield is also a bonus. At 256p, I’d be willing to buy Tesco shares today.

The post The Tesco share price is down over 10%. Is it time to buy? appeared first on The Motley Fool UK.

More reading

• Is now the time to consider buying Tesco shares?
• The Tesco share price is struggling to regain 500p even after strong results – where to from here?
• 2 reasons a stock market crash could be a good thing!
• Think the soaring Tesco share price is too good to be true? Read this…
• Prediction: by December, £5,000 invested in UK shares will be worth…

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Sainsbury (J) and 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.