Britain’s established grocers like J Sainsbury (LSE: SBRY) have long been under the cosh however, stretching back the days of the 2008/09 recession when economic pressure then forced customers into the arms of the discount chains.

And with customers realising they can now get more for less, the likes of Sainsbury’s have found themselves scrambling to stop their customer bases eroding.

But value isn’t the only retail trend to emerge in the past few years, of course. Indeed, the exploding e-commerce phenomenon has also shaken up the high street, and can offer plenty of opportunity for canny investors. And in this regard I reckon fashion retailer Boohoo.Com (LSE: BOO) has what it takes to generate stunning returns.

Recovery still shelved

The struggles facing Sainsbury’s were underlined by today’s full-year financial release, the country’s second-largest supermarket advising that like-for-like sales (excluding fuel) fell again during the period to March 2017, this time by 0.6%.

As a consequence pre-tax profits at the London firm fell 8.2% year-on-year, to £503m.

And alarmingly Mike Coupe warned that “the market remains competitive and the impact of cost price pressures remains uncertain.”

One bright spot for Sainsbury’s however, was the resolute performance of its recently-acquired Argos catalogue business. Total sales here rose 4.1% year-on-year, while like-for-like sales at outlets in Sainsbury’s supermarkets soared between 20% and 30%.

So it comes as no surprise that Sainsbury’s plans to accelerate the introduction of 250 Argos Digital outlets into its supermarkets to March 2019, up from 59 at present.

But the success of Argos cannot hide the escalating problems Sainsbury’s faces at its core operations (the Argos arm accounts for just 13% of profits, after all). Indeed, rampant expansion by the likes of Aldi and Lidl, combined with the cost pressures created by the falling pound, look set to keep profits on the back foot.

So the City expects Sainsbury’s to print a fourth successive earnings decline in fiscal 2018, a 5% drop currently being expected. And given that this bottom-line stress looks likely to last long into the future, I reckon the grocer’s forward P/E ratio of 14.3 times is far, far too expensive.

In fashion

Those looking to get in on Britain’s retail sector would be better served by investing in Boohoo.Com, in my opinion.

While the company’s elevated valuation may put off some share pickers (Boohoo sports a forward P/E ratio of 69.1 times right now), I reckon this is fair value given the online giant’s exceptional growth outlook. Indeed, it is expected to generate growth of 25% in the year to February 2018 alone.

The company saw pre-tax profit climb 97% during fiscal 2017, it announced last week, to £30.9m, as rampant sales growth abroad drove revenues 51% higher to £294.6m.

Boohoo saw the number of active customers on its books rise 29% last year to a staggering 5.2m, and improvements to its digital platforms across the globe, as well as huge investment in its warehousing facilities, promise to keep sales streaming in across the group. I reckon the business is one of Britain’s hottest retail picks at the moment.

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Sainsbury’s announced that like-for-like sales (excluding fuel) fell 0.5% during the nine weeks to March 11, underlining the company’s battle to stop shoppers flocking to its rivals.

Britain’s second-largest chain saw corresponding underlying revenues rise 0.1% during the prior three months, in what now appears to have been a mere pause in the firm’s downward sales spiral — revenues fell 1% during the first six months of fiscal 2017.

While chief executive Mike Coupe commented that “we are pleased with this performance and are making good progress against our key priorities,” he added that “the market remains very competitive and the impact of cost price pressures remains uncertain.”

Argos cheers

While sales of its traditional items continue to splutter, Sainsbury’s recent acquisition of catalogue colossus Argos has helped take some of the sting out of quarter four’s poor result.

Like-for-like revenues at Argos soared 4.3% during the period, Sainsbury’s observed, a result that drove combined underlying sales across the group 0.3% higher.

Commenting on Argos specifically, Coupe noted that “online participation is growing, driven by mobile and Fast Track delivery and customers are responding well to new ranges,” and added that “we are investing in digital to deliver excellent service and availability, with enhancements to the Argos website and app.”

Competitive concerns

But the plucky performance of Argos is not enough to encourage me to invest in Sainsbury’s, as the struggle at its core operations is only getting worse, with inflationary pressure and signs of stuttering wage growth still pushing customers into the arms of discounters Lidl and Aldi.

Latest Kantar Worldpanel numbers showed sales at these chains shoot 13% and 12.9% higher, respectively, during the 12 weeks to February 26th. This compares starkly with the meagre 0.3% till-roll rise over at Sainsbury’s, and suggests that the chain will have to keep price cutting to stop sales collapsing.

Meanwhile, profit margins at Sainsbury’s are likely to face a double whammy as the ongoing Brexit saga weighs on sterling.

Not cheap enough

Investors have recently shrugged off these fears and the share price of Sainsbury’s recently touched levels not seen since last May. Consequently Sainsbury’s now finds itself dealing on a prospective P/E ratio of 13.2 times.

Whilst below the FTSE 100 forward average of 15 times, I would consider a figure closer to the bargain watermark of 10 times to be a fairer reflection of the chain’s high risk profile.

City analysts certainly don’t expect earnings at Sainsbury’s to snap higher any time soon, and predict that the grocer will follow a 16% slump in the year to March 2017 with a further 4% drop in 2018.

It that happens it would represent the fourth annual fall, and it is not difficult to see these woes extending much further into the future, as the fragmentation of the supermarket sector intensifies. I reckon today’s results should encourage stock pickers to keep giving Sainsbury’s an extremely wide berth.

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You have to take your hats off to Tesco and applaud the success of its sales turnaround during the past year. When it looked as if the game was up for Britain’s mid-tier grocers, the Cheshunt chain upped the ante by investing huge sums in customer service improvements and brand development, schemes that have chimed well with customers.

However, with inflation steadily gaining pace and wage growth retreating, signs are growing that Britain’s shoppers are once again flocking into the arms of the German value chains. Latest Kantar Worldpanel data, for example, showed Tesco’s sales growing 0.3% during the 12 weeks to January 29, cooling from the 1.3% rise printed in the prior month.

By comparison, Aldi and Lidl saw takings leap 12.4% and 9.4% in the three months to end-January, speeding up from advances of 11.8% and 7.5% advised in the last release.

It appears that Tesco will have to keep slashing prices to stop the budget giants running clear again. And with sterling weakness playing increasing havoc with the supermarket’s cost base, this could have a devastating effect on its margins.

I reckon a forward earnings multiple of 19.4 times fails to reflect the hard work Tesco has in front of it to keep the budget players at bay, particularly as the retail giant’s rivals chuck billions over the next five years at expanding their UK footprint.

Bank still in bother

Banking mammoth Standard Chartered (LSE: STAN) also saw its share value turn 5% lower last month and away from two-and-a-half-year peaks as investors fretted over macroeconomic turbulence in its core Asian markets.

StanChart released a mixed bag of full-year results in February. On the sunny side the bank moved back into the black in 2016 and recorded pre-tax profit of £409m versus a loss of £1.5bn in the previous year.

Having said that, chief executive Bill Winters commented that “our financial returns are not yet where they need to be and do not reflect the group’s earnings potential.”

And with good reason — Standard Chartered continues to suffer massive charges from its vast restructuring programme, while revenues at its core operations also continue to disappoint. Total revenues at the financial play fell 11% last year. And worryingly the business warned that “operating conditions [are] expected to remain challenging in 2017.”

Standard Chartered still has a lot of work in front of it to get where it needs to be, and with conditions becoming more troubling it may struggle to realise its ambitious recovery plan any time soon. I reckon a prospective P/E ratio of 18.7 times is too high considering the potential for fresh share price pain.

The post These FTSE 100 heavyweights sank in February. I’d keep on selling appeared first on The Twelfth Magpie.

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Premier Foods announced that, although sales ticked 4.5% higher during December, aggregate revenues for the third quarter slipped 1% from a year earlier, to £251.4m. And the business said that it expects conditions to “remain challenging during the fourth quarter,” adding that “sales will be below previous expectations.”

But sluggish sales are not Premier Foods’ only problem, and the Mr Kipling owner commented that “recovery of significant input cost inflation in certain areas is taking longer than originally foreseen” as the cost of items such as sugar, chocolate, dairy products and wheat have increased.

As a result Premier Food expects trading profits to be around 10% lower than previously expected in the 12 months to March 2017.

Supermarket in the soup?

By comparison, supermarket slugger Tesco (LSE: TSCO) has, for the large part, performed pretty solidly in recent months, continuing the steady sales recovery that kicked in early in 2016.

The Cheshunt business saw like-for-like sales in its core UK marketplace rise 1.8% during the 13 weeks to November 26, it announced last week. However, Tesco announced that the checkouts had begun to slow during the key Christmas period, with underlying sales rising by a less-impressive 0.7% in the six weeks to January 7.

Of course it is too early to proclaim that the festive figures are the start of another revenues reversal at Tesco. But given that the British supermarket space continues to fragment, with value chains Aldi and Lidl and premium outlets like M&S and Waitrose all expanding their bricks-and-mortar presence, I believe Tesco still faces a colossal challenge to keep the top line growing.

And with the business also facing the same cost pressures as Premier Foods, I reckon hopes of a solid profits recovery at Tesco could also fall flat.

Tasty titan

I have no such worries over the earnings outlook of comfort food favourite Just Eat (LSE: JE), however, and expect its expanding global imprint to deliver stunning returns.

The takeaway colossus saw its share price slip to two-and-a-half-month troughs last week after advising that sales have continued to cool. Like-for-like revenues rose 36% during 2016, the firm advised, lower than the rises of 50% and 46% punched in 2014 and 2015.

But Just Eat’s chunky sales figures are clearly not to be scoffed at. And the company continues to invest heavily across the globe to keep sales on an upward slant. Just last month the firm made acquisitions in Canada and the UK, and in the case of the latter the acquisition of hungryhouse for a possible £240m could prove a particular game changer.

And with sterling set to keep sliding in the months ahead, Just Eat is also on course to enjoy currency tailwinds in 2017 and potentially beyond.

The post Premier Foods plc vs Just Eat plc vs Tesco plc: which should be your favoured foodie? appeared first on The Twelfth Magpie.

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Investors ploughed into Tesco thanks to a much-improved performance at the checkout in recent months. Indeed, the latest survey from Kantar Worldpanel in mid-December showed the chain gaining market share for the third successive month — Tesco’s take stood at 28.3% as of December 4 versus 28% a year earlier.

But I believe Tesco’s shooting share price is at variance with what is, at best, a mild sales recovery.

The supermarket’s decision to invest more in price-cutting and customer service has undoubtedly achieved no little success. However, the fight against Aldi and Lidl is set to intensify in the months ahead as inflation in the UK heats up in 2017 and puts pressure on shoppers’ spending power.

Tesco faces considerable trouble to keep slashing prices across the store as a still-declining pound heaps stress on its wafer-thin margins. The grocer is already facing a fight to stymie the impact of new store openings by its foreign counterparts.

If Tesco can navigate these problems and keep the tills ringing ever louder, then further share price rises can be expected. Having said that, a toppy P/E ratio of 20.5 times for the year to February 2018 leaves Tesco in danger of a sharp retracement should sales data start to disappoint again, a very real possibility in my opinion.

Precious… But precarious?

Gold digger Randgold Resources (LSE: RRS) also faces an uncertain future in 2017 as a variety of factors tug at precious metals prices.

The commodities colossus saw its share price rise 52% last year as concerns over the fallout of Brexit drove demand for store-of-value assets like gold in the run-up to June.

However, a recovering US dollar, spurred by strong economic data and the consequent expectation of Federal Reserve rate hikes, drove gold values sharply lower during the latter half of 2016. This caused the metal to tip from $1,350 per ounce at the start of July to end the year around the $1,120 marker.

Last month the Federal Reserve suggested that three more interest rate rises could be in store for this year alone. And signs of further progress for the US economy could send gold still lower in the months ahead, and with it Randgold Resources’ share price once again.

And, like Tesco, the mining play’s huge P/E ratio of 21.8 times for 2017 certainly leaves scope for investors to head towards the exits.

Of course the prospect of a lengthy and difficult British withdrawal from the EU could prompt fresh waves of risk aversion across financial markets. And many other issues, from uncertainty over incoming-president Donald Trump’s plans for the US to fears over economic cooling in China and the rest of Asia, could also put gold front-and-centre once again.

Randgold Resources could clearly go either way in 2017.

The post On the edge! 2 FTSE 100 stocks that could sink or swim in 2017 appeared first on The Twelfth Magpie.

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Unilever set the klaxon off in October by playing hardball with Tesco and Morrisons, the Marmite maker hiking the prices of its premier products to offset the impact of a declining pound on its manufacturing costs. Since then Walkers and Birds Eye have also attempted to hike the cost of their blue ribbon goods, and more are expected to get on board in the coming weeks and months as Brexit issues intensify.

This comes as a particular problem to J Sainsbury (LSE: SBRY) which, unlike its FTSE 100 rivals, is still witnessing an exodus of its loyal customers to the likes of Aldi and Lidl. The grocer has canned ‘multibuy’ offers in recent months to bolster the bottom line, but this measure is merely driving more of its shoppers elsewhere.

While Sainsbury’s is to be applauded for adopting  such steps and attempting to build margins, the company’s failure to mitigate this programme through heavy brand  investment and product quality improvements is failing to resonate with customers.

Indeed, Sainsbury’s announced last week that like-for-like sales dipped 1% during the 28 weeks to September 24, a result that prompted underlying pre-tax profits to slump 10.1% to £277m.

The London-based chain announced plans to strip even more costs out of the system to combat its flailing top line, the firm earmarking another £500m of cost savings during the three years from fiscal 2018. But much of this hard work threatens to be undone by the rising price of stocking its stores.

I reckon the company’s poor revenues picture and uncertain cost profile makes it an unsuitable pick for cautious investors.

Black gold bothers

Hopes of a much-needed supply reduction from OPEC saw investors plough back into BP (LSE: BP) and its fossil fuel peers in recent months.

Such a move is clearly a huge gamble, particularly as previous rhetoric earlier in 20106 had failed to materialise. And while an accord is still a possibility at OPEC’s meeting on November 30, the fissures running through the cartel are becoming increasingly apparent — Iraq joined Iran, Libya and Nigeria late last month in calling for exemption from any output reduction, putting further onus on other nations to take the pain.

Besides, news that OPEC production hit a fresh record of 33.64m barrels per day in October — up 240,000 barrels per day from September — arguably reveals the group’s true appetite for implementing such a deal.

With US producers also plugging their apparatus back into the ground — latest Baker Hughes data showed the rig count up by two last week, to 452 — the oil market’s weighty surplus looks set to persist long into the future.

And aside from US President-elect Donald Trump, most of the world’s political leaders remain committed to introducing ambitious decarbonisation initiatives, threatening the long-term earnings potential of oil majors like BP.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Unfortunately, it’s not possible to buy shares in Aldi or Lidl, not because they’re German, but because they’re privately owned and not publicly traded. Shame. Earlier this year Poundland was bought by South African holding company Steinhoff International, so it’s also off the table. And up until a couple of years ago you couldn’t buy shares in B&M either, but now you can snap them up at less than their June 2014 initial public offering (IPO) price of 270p.

B&M looks good value

The shares did well initially, soaring to 358p last summer, but then the valuation started to look very demanding at 30 times earnings for FY2015. Investors who decided to take profits were proven right when the shares began their descent to today’s levels of around 235p. In my view the sell-off isn’t justified as B&M will soon grow into its lofty valuation and prove to the market that it can still demonstrate strong growth even after the rapid expansion of the last few years. The company’s revenues surpassed £2bn for the last financial year while underlying earnings increased by a healthy 26%.

There’s plenty more to come from B&M as the company aims to increase the number of UK stores from 511 to 850, with further openings in Germany too. City analysts are projecting 10% earnings growth this year, with an even better 11% improvement pencilled-in for next year, leaving the once-expensive shares trading at a very agreeable 15 times earnings for FY2018. I’m expecting more consumers will turn to B&M once the effects of Brexit start to bite, and investors might want to do the same.

Grab a slice of Just Eat

Online food delivery service Just Eat (LSE: JE) last week upgraded its guidance for the full year after reporting a strong third quarter. The mid-cap firm lifted guidance for full-year revenues from £368m to £371m after it revealed total orders for the three months to the end of September had grown to 33.3m, a 34% rise on the previous year on both a reported and like-for-like basis.

Just Eat has been investing in a number of technology and marketing initiatives and is beginning to see the benefits in many of its markets as it continues to grow both organically and through worldwide acquisitions. The valuation might look excessive at 50 times earnings for the full year, but this falls to a more palatable 33 times earnings by the end of 2017. I think Just East has plenty more growth potential, particularly abroad, and should easily grow into its lofty valuation in the coming years.

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The London business saw like-for-like sales decline 1.1% during the 16 weeks to 16 September, announced last time around, indicating yet another top-line revenues — underlying till rolls fell 0.8% in the prior three-month period.

Under pressure

Recent updates from Tesco and Morrisons have suggested that the established ‘Big 4’ retailers may finally be getting to grips with the discount retailers. But investors have witnessed modest sales recoveries before, only for the growing allure of Aldi and Lidl to pull customers out of the Big 4’s doors once again.

Sainsbury’s has enjoyed a solid share price bump in recent weeks, the company recently dealing at six-month peaks, resulting in a forward P/E ratio of 12.4 times.

Whilst that’s cheap compared to the FTSE 100 (INDEXFTSE: UKX) average of 15 times, I don’t think this figure represents particularly good value, given the grocer’s poor growth outlook. Indeed, the City expects Sainsbury’s to suffer a 10% earnings fall in the year to March 2017 — the third consecutive fall, if it happens.

Sainsbury’s chief executive Mike Coupe advised in September that “we expect the market to remain competitive and the effect of the devaluation of sterling remains unclear.”

And given the likelihood of enduring margin pressure, as the need to keep slashing prices and soak up rising product costs continues, I reckon the supermarkets could be in line for a fresh stock price re-rating.

Bag a beauty

Fashion play Burberry (LSE: BRBY) is also due to release its next trading statement this coming Wednesday. But unlike Sainsbury’s, I believe the luxury stock’s long-term earnings outlook is on a much sounder footing.

Burberry released a much more reassuring trading update last month, the catwalk colossus advising that underlying revenues ticked 2% higher during April-September, to £859m. This indicates a pick-up in demand more recently — indeed, underlying sales remained flat during the first quarter, at £423m.

Next week’s release is likely to indicate further pressures in key marketplaces like Hong Kong and Macau, regions where macroeconomic turbulence continues to take its toll on sales of luxury goods.

But Burberry is also likely to mention the growing success of its digital ooedperations — e-commerce sales grew across all three of its major regions in the first half, it announced in October — as well as a positive reception to its newly-launched products like its Bridle and Buckle bags.

The number crunchers expect Burberry to enjoy a 7% earnings bounce in the current year alone, resulting in a P/E rating of 18.7 times.

Sure, this figure may peek above the London blue-chip average. But I reckon the tremendous pulling power of its prestigious fashions the world over makes Burberry a standout growth pick for long-term investors.

The post Should you buy — or sell — these FTSE 100 stocks before next week’s updates? appeared first on The Twelfth Magpie.

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Taylor Wimpey (LSE: TW) for one currently trades at a 25% discount to levels seen on the eve of the referendum. And this makes the stock the cheapest amongst its FTSE 100 (INDEXFTSE: UKX) peer group, based on current earnings and dividend estimates.

For 2016, an expected 15% earnings rise leaves the business dealing on a P/E rating of just 8.4 times. This is some way below the benchmark of 10 times that’s taken to be indicative of firms of high risk profiles.

And Taylor Wimpey is expected to pay a dividend of 11.2p per share this year, resulting in a gargantuan yield of 7.7%.

While tough economic conditions may cause some moderation in home price rises looking ahead, I still expect the likes of Taylor Wimpey to continue reporting handsome earnings growth. Britain’s homes shortage is not likely to disappear any time soon, not while lenders are likely to maintain their ultra-attractive lending policies to stop housebuyer demand falling off a cliff.

In short, I believe Taylor Wimpey and its peers are some of the most robust contrarian stock picks out there.

Big shop of horrors

I am less enthused by the earnings outlook over at J Sainsbury (LSE: SBRY), however, in the near-term and beyond.

Grocery industry researcher Kantar Worldpanel reported last week that the London chain’s sales slipped 0.4% during the 12 weeks to October 9, continuing the steady top-line deterioration as Aldi and Lidl continue to surge — sales at these outlets rose 11.4% and 8.4% respectively.

As well as having to contend with rising shopper demand for rock-bottom prices, Sainsbury’s is also no doubt quivering at the prospect of pressured margins as suppliers try to pass on the cost of adverse currency movements. The battle between Tesco and Unilever earlier this month marks the start of what is likely to prove a fresh, and potentially ugly, battle facing the UK’s supermarkets.

Such an environment makes investment in Sainsbury’s an extremely risky business, in my opinion, and I believe  lack of obvious growth drivers — the firm is expected to punch a fourth consecutive earnings dip in the year to March 2017, this time by 10% — outweigh a conventionally-low P/E multiple of 11.8 times. This is some way below the FTSE 100 average of 15 times.

And I reckon this poor earnings outlook could also put projections of a 10.6p per share dividend, and with it a 4.4% yield, in significant jeopardy.

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Sustained sterling weakness?

A logical place to start would be to look at Tesco’s very-public spat with Unilever last week, a fight playfully labelled Marmitegate by the country’s press.

In an effort to cushion itself from recent sterling weakness, Unilever attempted to hike prices of its much-loved products by around 10%. Following much public outrage both companies came to an agreement on Thursday afternoon, with many claiming Tesco the victor, particularly in the PR department.

However, Unilever isn’t likely to prove the only supplier to try its luck with Britain’s supermarkets in the months ahead, particularly as Brexit negotiations are likely keep the pound under sustained pressure. The UK currency remains depressed against the US dollar, below $1.22 in start-of-week trade, and further weakness in the months ahead would appear a foregone conclusion.

And the margin issue is likely to worsen not only in the near term, as the British winter forces Tesco and its peers to import more goods from abroad, but well into 2017 as supplier currency hedging begins to unwind.

Market mayhem

As well as battling the prospects of escalating merchandise costs, Tesco’s margins are also taking a double-whammy as the grocery sector’s price wars intensify.

Latest numbers from industry researcher Kantar Worldpanel showed sales at Tesco falling ‘just’ 0.2% during the 12 weeks to September 11, the best result  since March 2014.

And the Cheshunt chain confirmed that its checkout performance is steadily improving in this month’s interims, Tesco advising that like-for-like sales rose 0.9% during June-August, speeding up from 0.3% in the prior quarter.

But to suggest that Tesco is finally back would be more than a tad premature, in my opinion. The company still nursed a 28.3% drop in pre-tax profits for the first fiscal half, after all, the result of its expensive price-cutting initiatives to drag revenues higher again. And Tesco is likely to have to keep slashing its shoppers’ bills as its rivals up the stakes.

Aldi, Lidl and Amazon have all announced vast expansion plans in recent months to increase their bite of the British grocery market. And Tesco’s established competitors like Asda and Morrisons have responded to these  moves by announcing scores more price cuts across many of their major product lines.

Pricey and perilous

A giddy reaction to October’s trading update thrust Tesco’s share price to its highest since August 2015, taking total gains during the past month alone to more than 20%. But I reckon this ascent leaves the chain in danger of a significant retracement.

Indeed, it currently deals on a P/E rating of 27.9 times for the year to February 2017, far above the widely-regarded watermark of 10 times associated with firms carrying troubled growth outlooks.

Should Tesco’s mild revenues resurgence prove a temporary phenomenon — as it did back in 2014 — I would expect the supermarket’s share value to sink yet again.

The post 3 things that could sink Tesco plc’s share price appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon.com and Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.