Profits soar

At £27.3bn, sales rose 2.6% over the half-year compared to the same period in 2020. This led total adjusted operating profit to jump 40.6% to £1.46bn. The vast majority of this came from the company’s stores, which benefited from reduced pandemic-related costs in the UK and abroad. That said, it’s encouraging to note that Tesco Bank also returned to profit.

On a statutory basis, revenue rose 5.9% to £30.4bn over the period. Pre-tax profit more than doubled to £1.14bn. In another positive, free cash flow from Tesco’s retail arm rocketed 93.6%, allowing the company to reduce its net debt burden from £12.5bn down to £10.2bn. As someone who places great importance on a firm’s financial resilience, this was a particular highlight for me.

Expectations raised

Following such a great first half, Tesco has now increased its expectations on adjusted retail operating profit for the full year ending 27 February. A total of £2.6bn is now predicted, even though some moderation of sales is likely. That’s a 4% hike on previous guidance.

Naturally, there’s no guarantee that this number will be hit. Supply chain issues, driver shortages and food price inflation could make for a tricky festive period for all supermarkets, including Tesco. CEO Ken Murphy was keen to highlight that the company’s relationships with its suppliers remained “a key asset“. However, I suspect things could get strained as the end of 2021 approaches.

The are other potential obstacles, of course. A rise in Covid-19 infection levels as more people socialise indoors could hurt sentiment towards the stock. The sharp rise in energy prices could also have consequences as shoppers adjust their spending to meet higher bills. Naturally, a wider slowdown in economic growth could see the FTSE 100 retreat too. In such a scenario, the Tesco share price will likely fall in tandem, despite the company’s fairly defensive qualities.

Notwithstanding all this, the stock still grabs my attention.

Tesco share price: still good value

Tesco was trading at 13 times earnings before markets opened this morning. For a business that possesses an enormous share of the market (and a hugely popular loyalty scheme), that looks reasonable to me. My enthusiasm rises further when one considers just how well the company has developed its digital offering. Yes, multiple UK lockdowns have no doubt helped. However, like-for-like online sales growth of 74.1% over two years isn’t to be sniffed at.

In addition to the above, I also regard Tesco as a great candidate for an income-focused portfolio. A potential 9.6p per share cash return this year gives a yield of 3.8%. That’s higher than the 3.5% offered by the FTSE 100. It also looks very secure, based on anticipated profit.

Patience required

Today’s rise in the Tesco share price looks justified. It also goes some way to solidifying my opinion that this is still the best pick of the sector. So, while the next few months could prove difficult for all retailers and patience is most definitely required, I’d feel comfortable buying TSCO today.

The post Here’s why the Tesco share price is flying today appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

Paul Summers 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.

Tesco share price interest

As I referenced in a previous article, competitor Morrisons has accepted a £7bn bid from US private equity firm CD&R. The bidding war for Morrisons led to its share price soaring over 60%. This interest seems to have rubbed off on the wider supermarket industry, with Sainsbury’s and Tesco also seeing their shares jump 5% and 10% in the last month, respectively. Any takeover speculation is likely to benefit Tesco shares, even if an acquisition never comes to fruition. 

Not that the share price has been on an uninterrupted upward trajectory. The Tesco share price fell sharply in February, but it wasn’t anything to worry about. In early 2021, it announced a special 50.93p dividend would be paid to investors. This was made possible by the £5bn sale of its Asian businesses. The shares fell almost 30% in the process as it performed a share consolidation. This meant 15 new shares were issued for every 19 existing ones — and investors became £5bn richer in the process. 

Tesco currently boasts a healthy 3.91% dividend, significantly higher than the FTSE 100 average of 3.3%. This would make Tesco a great income addition to my portfolio, I feel, and is another reason I like the stock. 

Brexit problems

There are risks, however. Brexit food shortages have been exacerbated by the pandemic. This has sparked fears of increasing future food prices. In July, the British Retail Consortium (BRC) shop price index showed that average food prices had declined 0.8% year-on-year. However, BRC Chief Executive Helen Dickinson added that “rising commodity prices and Brexit red tape” were creating an unsustainable price environment for the UK supermarket sector. Moving forward, this could be a problem for Tesco shares.

In addition to price problems, the HGV driver shortage is putting increased strain on the sector. Analysts have estimated a shortfall of 90,000 drivers could lead to food shortages during Christmas and into 2022. This will inflate prices further and could also damage the Tesco share price.

A cheap buy?

Tesco shares are currently trading at a P/E ratio of 19x, significantly above the FTSE 100 average of 15.8x. However, I expect this number to drop if Tesco is able to meet its earnings targets for the quarter. It reported a 13% increase in like-for-like sales in Q1, which should help drive up earnings. 

Aside from this, the UK supermarket sector is a good defensive play, I feel. People will always need food. Although Brexit is already causing problems, I don’t believe these will be too heavily reflected in share prices. Overall, although don’t think Tesco shares will make any crazy gains in the near future, I like Tesco as a solid income option for my portfolio.

The post Should I buy Tesco shares today? appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

Dylan Hood has no position in any shares mentioned above. The Motley Fool UK has recommended Morrisons 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.

The J Sainsbury (LSE: SBRY) share price has performed brilliantly over the last year, rising 57% by last Friday’s close. It’s up another 11% this morning. Could it be about to explode?

Sainsbury’s share price: ready to rocket?

According to headlines over the weekend, private equity group Apollo is taking a closer look at Sainsbury. While this has been referred to as merely “exploratory” (according to the Sunday Times), it does suggest that we could be about to see an offer submitted for the FTSE 100 member. 

This shouldn’t really come as a surprise given the bidding war that has erupted for fellow listed supermarket Morrisons. Last week, it was revealed that management would be recommending holders accept a 285p per share bid for the company from Clayton, Dubilier & Rice (CD&R). This valued MRW at £7bn, up from the £6.7bn offer received from rival Fortress. 

Sainsbury’s attractions aren’t hard to fathom either. For one, the shares still look reasonably valued and, before this morning, changed hands for a little less than 14 times earnings. It’s also got a big property portfolio and currently has the second-largest share of the UK grocery market.

However, this is not to say that I would be guaranteed a great return on my investment if I bought today.

No guarantees

One rather obvious risk to buying SBRY now is that it won’t actually receive a bid. One can name many firms in the FTSE 100 that have looked like prime takeover candidates for years but that are still to be snapped up. Broadcaster ITV springs to mind. Luxury fashion firm Burberry is another. Both already occupy places in my portfolio. However, I own them because they are, in my view, great businesses. If I were to buy the supermarket’s stock now, I’d need to be confident that Sainsbury is capable of delivering a solid gain without any bid interest.

A further, potential issue here is that Apollo could join forces with Fortress and launch another counter bid for Morrisons. Were this to happen, any talk about acquiring its rival would likely end and the Sainsburys share price rally may run out of steam.

It’s also worth highlighting that SBRY is among the most shorted stocks on the London Stock Exchange, according to shorttracker.co.uk. In other words, a good proportion of traders are betting that the Sainsbury’s share price will fall. 

Of course, this could actually work in investors’ favour if bid rumours grow. In such a scenario, the aforementioned traders would rush to close their positions. The resultant ‘short squeeze’ would likely put a rocket under the Sainsbury’s share price. We may already be seeing some of this today. 

Undeniably positive

Based on recent news, I think there’s certainly a chance the share price could continue rising — and potentially explode — over the next few weeks. The fact that it’s already up 6% in early trading today is certainly evidence that the market is getting excited over the company’s near-term outlook.

Even so, I’m less inclined than others to buy today. Based on my own risk tolerance, (long) investing horizon and the business itself, my preferred choice remains market leader Tesco. And if I were solely looking for income from the supermarket space, this real estate investment trust looks by far the least risky option to me. 

The post Is the Sainsbury’s share price (SBRY) about to explode? appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers owns shares in Burberry and ITV. The Motley Fool UK has recommended Burberry, ITV, Morrisons, 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.

This morning, FTSE 100 supermarket giant Sainsbury (LSE: SBRY) said sales in Q1 had been “ahead of expectations“. Does this news, combined with a reasonable valuation and the proposed takeover by private equity of rival Morrisons, now make the shares a screaming buy for me? Let’s look at those all-important numbers first.

Better than expected trading

Returning to normal

Sainsbury now expects pre-tax profit of “at least £660m” for the current financial year. This is a fine improvement on the consensus forecast of £620m back in April. It’s also impressive considering that shoppers’ behaviour is likely to return to normal as Boris Johnson lifts most coronavirus-related restrictions in England on July 19. 

Indeed, despite online grocery sales rising 29% in Q1, Sainsbury expects demand to gradually reduce as more people return to its stores. Even so, it’s clear that the company’s online offering continues to be popular. It accounted for almost a fifth of its grocery sales over the last three months, compared to just 8% in 2019/20. 

So why aren’t the shares flying?

Despite these numbers, Sainsbury shares were trading fairly flat this morning. What gives?

The post Are Sainsbury shares now a screaming buy? appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons 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.

Trading update

Building on the momentum seen in 2020, Tesco revealed that business had continued to be “strong” over the 13 weeks to 29 May.

In the UK and ROI, sales rose to just over £12.4bn during the quarter. This was a 1.3% increase on a one-year like-for-like basis. That’s certainly no disaster given the strong comparatives from 2020. On a two-year like-for-like basis, the figure was up 8.7%.

In the UK alone, Tesco noted that the 9.3% rise in like-for-like sales over two years shows just how much the company benefited from people eating more at home compared to before the pandemic arrived on these shores. The 9.2% increase in sales at the company’s wholesale business (Booker), thanks to a recovery in the hospitality sector, was also worth noting and bodes well for the future.   

What now?

Commenting on today’s numbers, CEO Ken Murphy declared that Tesco’s guidance on profit had not changed. 

Of course, nothing can be guaranteed. While the grocery sector is a lot more defensive than other parts of the market (everyone still needs to eat), there’s still a very real possibility that sales at Tesco and its peers will slow more than expected. This is particularly the case for online orders, which exploded over the last year.

In fact, there’s evidence that this is already happening. Today, the £18bn cap revealed that sales growth has “moderated” over the last couple of months in line with the phased lifting of restrictions. This may help explain why the Tesco share price is retreating today.

Although market commentators disagree over whether inflation will persist or not, a rise in food prices may also hit margins for a while. Naturally, attempting to pass these increases on to customers won’t work because of how competitive the industry is. People will just shop elsewhere. 

Best buy

Investors like me are spoilt for choice when it comes to investing in this sector. In addition to Tesco, there’s also FTSE 100 peer Sainsbury’s and FTSE 250 rival Morrisons. Given its technical expertise, a more growth-oriented investor may also be attracted to the potential of Ocado. 

Personally, I’m still inclined to believe that Tesco remains the best of the bunch. As far valuations go, the FTSE 100 stock trades on a little less than 13 times forecast earnings. That’s slightly lower than Morrisons (13 times earnings) and only slightly more than Sainsbury’s (12 times earnings). Based on its ongoing dominance of the market, I can’t help but think Tesco gives investors the most bang for their buck. 

But it goes beyond valuations. As I explained last month, the notable short interest in both Sainsbury’s and Morrisons make them unattractive options, in my view. For all its promise, Ocado is still not consistently profitable. 

In addition to its valuation, Tesco also offers a great dividend stream. Analysts currently have the company returning 10.5p per share in FY22. That’s a yield of 4.6% based on Tesco’s share price right now. 

All told, this remains my first choice in the sector and I’d feel comfortable buying the stock today.

The post The Tesco share price is down but I’d still buy appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons, Ocado Group, 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.

Before investing, I think it’s a good idea to check which companies are attracting the most interest from short-sellers. For newer readers of The Motley Fool UK, these are traders who place bets that the share prices of certain companies will fall. It’s risky stuff — the potential losses are limitless — so those that do it need to be very confident that they’re on to a good (or bad) thing. What’s interesting right now is that the most-bet-against stock is actually from the FTSE 100. 

Revealed – the most hated FTSE 100 stock

Supermarket giant J Sainsbury (LSE: SBRY) is currently attracting more short-selling interest than any other London-listed stock according to shorttracker.co.uk. To put this in perspective, second place goes to deeply-indebted cinema chain Cineworld.

At first glance, this looks strange. After all, the FTSE 100 member’s share price hasn’t done badly in recent months. Those investors who put Sainsbury’s in their shopping basket around the time that positive news on vaccines was announced would be sitting on a gain of around 40%. Even those who bought at the beginning of March would have seen their holdings rise 20% in value. 

So, why is this happening? There are a few potential reasons.

First, it’s possible that Sainsbury’s sales could be about to moderate. The great reopening of the UK reduces the need for shoppers to buy in bulk when they visit stores or place online orders. While the latter won’t fall off a cliff, the lifting of restrictions might play back into the hands of competitors such as Aldi that don’t offer such a service.

Second, Sainsbury’s CEO Simon Roberts recently reflected on how “a lot of uncertainty” following Brexit is impacting on the company’s operations in Northern Ireland. Since leaving the EU, some food products have struggled to make it to its 13 stores due to complex border requirements. This has only added to the FTSE 100 company’s costs. 

Another thing worth bearing in mind is that Sainsbury’s net debt is almost at the same level as its entire market capitalisation. Sure, the defensive nature of its industry means investors shouldn’t automatically panic. However, the last year has served as a useful reminder of the importance of having a resilient balance sheet. 

So, J Sainsbury could be about to tumble?

Near-term, it’s very hard to say what will happen. We can’t predict future share prices with any certainty. Nor can we know for sure whether the short interest will increase or decrease going forward. 

One thing to bear in mind, however, is the recent jump in the valuations of heavily shorted stocks in the US. Although the reasons for this will vary, it does show just how quickly a situation can reverse if there’s a short squeeze. For Sainsbury’s, a catalyst might be an earnings surprise. It next reports on trading in July. 

It’s also worth noting that ex-FTSE 100 member and industry peer Morrisons also features in the top 10 most-shorted stocks. This indicates that traders are pretty bearish on the sector as a whole.

Bottom line

As a growth investor, I’m not really interested in the grocery space. If I were looking to get involved though, my favourite pick remains market-leader Tesco. Interestingly, there’s barely any short interest in this FTSE 100 stock.

The post Wow! This FTSE 100 company is the UK’s most hated stock appeared first on The Twelfth Magpie.

More reading

• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons 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.

Why is the Cineworld share price falling?

One potential explanation for the decline might be a simple bout of profit-taking. Having done so well over recent months, it’s only natural some traders will want to sell up and move on.

Whether this decision is the right one is debatable. On Monday, the FTSE 250 firm revealed it had seen a “strong opening weekend” and that it expected audience numbers to continue rising in the months ahead. With delayed blockbusters such as Top Gun: Maverick, No Time to Die and Black Widow finally due for release, it’s possible that recent weakness in the Cineworld share price will prove temporary.

That said, I’m still wary. The arrival of warmer weather in the UK risks spoiling the party. On top of this, investors can’t overlook the astonishing amount of debt still weighing on the balance sheet.

There are also developments within the film industry that need to be considered. The chance of movies being made available to stream at the same time they’re released in cinemas could be another headwind for Cineworld, especially once all the additional costs of making at trip are factored in.   

Taking the above into account, it’s perhaps to be expected the company remains a favourite with short-sellers (those betting that a particular share price will fall). As I type, Cineworld is the second most hated stock on the market. The only stock attracting more short-sellers, according to shorttracker.co.uk, is supermarket giant Sainsbury.

Are there safer ‘reopening’ opportunities in the market? I think so.

A better opportunity?

Today’s update from low-cost gym provider The Gym Group (LSE: GYM) has been warmly received by the market. It’s not hard to see why. 

With all of the company’s 187 sites now open, trading has “outperformed” management’s own expectations. Total memberships climbed from 547,000 at the end of February to 729,000 by 24 May. This brings the company close to the 794,000 memberships seen in December 2019. Fitness fans are also visiting sites at record levels (an average of 1.5 times per week). 

Although trading may slow during the summer, GYM is in no mood to rest. Having opened four new gyms since 12 April, the firm looks set to take advantage of (newly) vacated sites and continue growing its estate. With net debt of “only” £63m at the end of April, GYM is clearly in better financial health to achieve its goals than Cineworld.

Of course, any investment involves risk and GYM’s no exception. In my view, there’s a distinct lack of economic moat here. As a result, the company will likely always face fierce competition for members.

There’s also no guarantee the popularity of working out from home, from both a convenience and cost perspective, won’t continue rising. And, as much as I hate to say it, there’s also a chance that coronavirus infection rates could spike again. 

Despite these potential drawbacks, I suspect I’d feel far more comfortable buying GYM over CINE right now. 

The post The Cineworld share price is flagging. I think this reopening stock is a better buy appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended The Gym Group. 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.

Unfortunately, this hasn’t been reflected in the performance of the Tesco share price to date. I think this is set to change over the rest of 2021.

Tesco share price: opportunity knocks

Based on current analyst projections, Tesco trades on 11 times forecast FY22 earnings. This makes it the cheapest of the listed supermarkets to acquire. I think that’s very attractive considering Tesco remains the clear market leader in the UK. Despite the huge growth achieved by German discounters Aldi and Lidl over the last few years, Tesco still commands 27% of the market. Sainsbury, in second place, has just over 15%.

The reason for this low valuation relates to the huge jump in profits expected once the coronavirus storm has passed. These have been held back as a result of the additional costs the retailer has faced from needing to adapt its stores and delivery service in response to Covid-19. This helps to explain why the FTSE 100 index is up almost 30% since last March’s market crash but the Tesco share price is down almost 20%.

Even if a recovery takes time, Tesco looks like a great stock for income seekers. Analysts have the company returning 10.7p per share in the current financial year. That becomes a yield of 4.7%, based on the Tesco share price as I type. This goes some way to compensating for the fact that holding individual company stocks involves more risk than buying a fund tracking an index. For comparison, The FTSE 100 currently yields a little under 3.2%.

In addition to the bigger payout, Tesco’s dividends look set to be covered almost twice by profits. In other words, it’s very unlikely to be cut, or not paid, at least as things stand.

Tech threat

As bullish as I am on Tesco, this doesn’t mean there won’t be some turbulence ahead. For one, the coronavirus pandemic could conceivably continue to hold back profits if (and that’s a big ‘if’) the UK experiences a third wave like some European countries. 

Another potentially more long-lasting threat is the possibility that e-commerce giant Amazon may acquire one of Tesco’s rivals (Morrisons seems the most likely candidate) and/or dramatically grow its presence on UK high streets.

As things stand, the latter looks more probable. In the last month, the US company has opened two Amazon Fresh branded stores in London. Instead of using self-service tills or queuing up, customers open an app on their phones on arrival. The app then records what they take out of the store and bills the person accordingly.

Now, whether this innovation is sufficient to worry Tesco is hard to say. In time, the company could end up introducing similar technology to its own stores. Nonetheless, I do think it’s worth bearing in mind before clicking the ‘buy’ button.

Tesco remains the go-to option in this sector, in my opinion. It may not boast the pulse-quickening excitement of a stock like Ocado but I think it’s a far better pick for more defensive-minded, get-rich-slowly investors like me.

The post The Tesco share price looks great value to me appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group 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.

Beating expectations

One of the earliest companies to report in 2021 is clothing retailer Next (LSE: NXT). It’s scheduled to provide an update on trading over the festive period on January 5.

I suspect the shares could do well on the day, assuming the retailer hasn’t been affected too much by the ongoing coronavirus-related restrictions. Its last statement was particularly bullish.

The company reported in October that trading over Q3 had been better than expected. Full-price sales were up 2.8%. As a result, the FTSE 100 member upgraded its guidance on full-year profit to £365m — £65 more than its estimate just one month earlier.

This isn’t to say the Next share price won’t see some action before January. News that it has made a formal bid for Topshop owner Arcadia could get investors excited or nervous, depending on the size of the offer.

Trouble ahead?

Another FTSE 100 stock I’ll be watching closely next month is housebuilder Persimmon (LSE: PSN). The company is down to issue a trading update on 13 January.

Given the roaring UK property market, I’d expect a lot of positive news to be revealed and Persimmon’s share price to rise accordingly.

Having said this, it might not last long. I’m inclined to agree with my Foolish colleague Harvey Jones when he recently suggested we could see a housing market crash in 2021.

As he reflected, the stamp duty holiday can’t go on forever. When it does end, we could witness a notable decline in activity. Factor in more economic turmoil caused by the coronavirus pandemic, Brexit, or both, and house prices could finally lose momentum. In such a scenario, it seems fair to assume that shares in estate agents and housebuilders will suffer too.

Persimmon holders should do well over the long term but I’m not sure I’d want to get involved right now. 

Short favourite

A final FTSE 100 share I’ll be monitoring in January is Sainsbury’s (LSE: SBRY). The UK’s second-largest supermarket chain is also down to release a trading statement on 13 January.

Since we can’t exactly travel far over the festive period, I’d assume that families are consoling themselves with an extra-large feast at home this year. This should make for some very healthy pre-Christmas trading for Sainsbury’s. 

Nevertheless, I still see the stock as something of a value trap. The £5bn-cap has seemed rather lacking in direction since its proposed merger with Asda was blocked back in 2019. It lacks Tesco‘s dominance, Morrisons‘ connections with Amazon and the nimbleness of the German discounters (Aldi and Lidl).

Based on the amount of short interest in Sainsbury, it would seem I’m not alone in thinking this. Forebodingly, it’s the fourth most shorted company on the London Stock Exchange. If my shares were only slightly less hated than those of Premier Oil, Pearson, and Cineworld, I’d be worried. 

Finishing 2020 at pretty much the same price as they began, I submit ‘smart money’ on Sainsbury’s shares has already been made.

The post 3 FTSE 100 shares I’ll be watching closely in January appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. 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.

It’s not hard to see why this real estate investment trust is so despised. With retail sales still sluggish as a recession bites, the owner of sites such as Highcross in Leicester and Victoria in Leeds is feeling the pain.

A few weeks ago, the firm revealed that just 41% of rent had been collected over its fourth quarter. This was lower than the 59% collected for Q3. It’s also a world away from the 97% achieved in Q1.

The longer the pandemic persists, the more pressure this puts on Hammerson’s balance sheet. Can another cash call be far away?

More hated than Hammerson

Trading at 20p a pop, shares in Hammerson look like a classic value trap. Even if ‘bricks and mortar’ retail is able to recover after the coronavirus subsides, the huge growth in online shopping shows no signs of abating. Factor-in recent management issues and the mid-cap looks to me to be more trouble than it’s worth.

Having said this, two FTSE 100 stocks — educational products and services provider Pearson (LSE: PSON) and supermarket Sainsbury (LSE: SRBY) have even bigger short positions.

Have the valuations of these top-table titans dropped far enough to now make them bargains for patient Foolish investors? 

Uncertain outlook

Pearson was a favourite with the shorting community long before the coronavirus arrived. Even now, it’s still the sixth most hated stock on the market according to shorttracker.co.uk. That seems fair based on recent trading.

Earlier in October, the self-styled ‘world’s learning company’ said that sales had declined by 14% over the first nine months of 2020 due to the closure of test centres and schools. Revenue in the UK was particularly hard hit by the cancellation of exams.

With “larger than usual uncertainties” likely to be felt in Q4, Pearson could only say that trading for the rest of 2020 would be “broadly in line with market expectations“. That’s hardly bullish. However, one could argue this is already priced-in.

Shares in Pearson currently trade on a little less than 13 times forecast FY21 earnings. That could make it a decent contrarian buy, especially as the FTSE 100 company said that online learning sales had helped to soften the blow from the pandemic. I’d certainly be more bullish on Pearson than I would on Hammerson.

Cheap for a reason

You might expect the UK’s second-biggest supermarket to be in something of a purple patch. After all, the coronavirus confined us to our homes earlier in the year. There’s a possibility of it doing the same again before 2020 ends. 

It would seem traders don’t agree. At the time of writing, Sainsbury is the eighth-most shorted stock on the market.

A forecast price-to-earnings (P/E) ratio of just under 11 suggests the shares are a bargain but I’m not so sure. As well as having to cope with competition from the German discounters and the Ocado/M&S tie-up, there’s a truckload of debt on the balance sheet. Margins are wafer-thin too.

Even if/when a vaccine to Covid-19 is found, I can’t see Sainsbury bouncing back to the same extent as other stocks. With dividends on hold, I’d steer clear.

The post These FTSE 100 shares are more hated than Hammerson. Are they too cheap for me to ignore? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.