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 Twelfth Magpie.

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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.

Marks and Spencer

Marks and Spencer (LSE: MKS) is a major British multinational retailer that sells clothing and beauty, home, and food products. This week, three director dealings were carried out. A large number of shares were received in lieu of a cash dividend, but a portion was sold to cover tax and national insurance obligations.

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 203,120 @ nil
• Total value: N/A

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 99,121 @ £1.37
• Total value: £135,805.68

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 138,115 @ nil
• Total value: N/A

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 67,399 @ £1.37
• Total value: £92,343.37

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 131,691 @ nil
• Total value: N/A

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 62,264 @ £1.37
• Total value: £88,048.11

Cranswick

Cranswick (LSE: CWK) is a leading UK food producer and supplier of fresh and premium food products. It’s most famous for its meat products. Four directors opted to exercise their share options this week. However, they then proceeded to sell portions.

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 48,100 @ nil
• Total value: N/A

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 24,775 @ £30.82
• Total value: £763,515.95

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 26,300 @ nil
• Total value: N/A

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 13,546 @ £30.82
• Total value: £417,460.628

HomeServe

HomeServe (LSE: HSV) offers low-cost home warranty and home repair options. It markets itself as the solution to expensive and inconvenient emergency home repairs. Three massive director dealings happened earlier in the week, as shares were awarded to these directors based on performance conditions.

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 21,119 @ nil
• Total value: N/A

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 10,190 @ £11.69
• Total value: £119,121.10

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 30,619 @ nil
• Total value: N/A

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 11,815 @ £11.69
• Total value: £138,117.35

• Name: Richard Harpin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 34,911 @ nil
• Total value: N/A

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, all the director dealings above occurred with free shares. These shares were acquired by directors under their companies’ share plans. These were either a restricted share plan (Marks and Spencer), or incentive plans (Cranswick and HomeServe).

Share award schemes give employees actual shares rather than share options. The value of shares given to directors here is treated as employment income. This means that it may be subject to tax and national insurance contributions. That is unless the directors opt for an HMRC-approved share scheme, which has its own rules and requirements. Incentive plans give directors shares when they hit certain performance targets. For HomeServe directors, the awards were subject to the company’s earnings per share.

The post Director dealings: Marks and Spencer, Cranswick, HomeServe appeared first on The Twelfth Magpie.

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John Choong 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.

Marks and Spencer (LSE: MKS) shares are down 40% this year. Despite that, the retailer reported excellent numbers in its most recent full-year results, with plenty of promise for the future. As such, I think a closer look at the company is warranted.

Hungry for more

After years of declining profit margins, Marks and Spencer launched its latest turnaround programme in 2020 under the Never the Same Again name. This bid to improve the brand’s image and business operations looks like it might be working. The FTSE 250 firm has posted an excellent recovery since, with improvements in customer perception of the M&S brand. As a result, M&S Food sales grew 10.8% year-on-year, while expanding its market share from 3.4% to 3.6% over a three-year period. This was also helped in part by its key partnerships with Coca-Cola‘s Costa Coffee and Ocado.

Additionally, the firm saw its operating margins improve in the second half of its financial year. Even so, I was impressed that the board is aiming to further improve its food supply chain through boosting efficiency and cutting costs. Thus, I expect its food prices to become more affordable, allowing it to expand its market share.

Getting the right fit

Marks and Spencer isn’t just its food business, however. One of the main reasons behind its poor past performance can be attributed to the company’s inability to keep up with the times, as far as its struggling clothing offer was concerned.

That being said, the Never the Same Again programme gave a breath of fresh air to the retailer’s clothing segment. Consequently, the division saw its sales figure jump 51.6% on the year and 3.8% against three years ago.

There’s also the positive effect of M&S’s investments in digital. With heavy competition from e-commerce giants and more nimble omnichannel retailers, Marks and Spencer was always going to struggle. However, enhanced investment has made its e-sales more market competitive. In fact, market penetration has almost doubled to 34%. This has been helped by around its 40 clothing brand partnerships. Moreover, the acquisition of Jaeger and The Sports Edit have added even more depth and variety to its offer.

A summer with Marks and Spencer

Since 2018, Marks and Spencer has reduced its debt levels by 12%. What impressed me most though, is its cash position, which has grown by a whopping 455%! Furthermore, profit margins are back to a healthier level of 2.8%, with free cash flow at £1.1bn.

Nevertheless, my concerns of a potential recession impacting sales are shared by the board. Having said that, CEO Stuart Machin stated that its market positioning and business strategy will help mitigate any slowdown. He believes that the company has a strong brand image to help it maintain its market share. He also expects strong tailwinds from travel, leisure, and weddings to keep its sales numbers strong.

Marks and Spencer shares have a price-to-earnings (P/E) ratio of 9. While it’s not seen as a traditional growth stock, it does have an average price target of £1.93. This gives it the potential to rebound by 43% over a one-year period. Therefore, I’ll be capitalising on its low share price and will buy some stock for my portfolio in July.

The post Should I buy Marks and Spencer shares for its growth in July? appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Ocado Group, and boohoo 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.

Grocery sales slump

Kantar’s latest grocery figures continue to show that sales are declining at supermarkets. Grocery sales continued to dwindle, dropping a further 4.4% in the 12 weeks to 15 May. Additionally, the average grocery basket is now 7% more expensive than it was last year, up from the 5.4% figure last month. Tesco shares don’t exactly scream ‘buy’ given the pessimistic data.

In fact, more than one in five households now consider themselves as struggling in this high-inflation environment. Within this group, rising groceries prices are a concern to over 90% of them. This makes groceries the second most important issue behind high energy bills. Nevertheless, Tesco could capitalise on this shift in consumer sentiment.

Jubilant month

Amid all the negative statistics, the summer months could help Tesco’s top line, especially with the upcoming Platinum Jubilee holiday.

With a four-day bank holiday weekend on the horizon, we’re expecting people to celebrate with friends and family. Looking back at the Diamond Jubilee in 2012, we saw a 10% boost in supermarket sales during the week leading up to the festivities. We should never underestimate the appetite for a party, especially a royal one.

Source: Fraser McKevitt, Kantar Head of Retail and Consumer Insight

Tesco has managed to buck the trend of many of its peers. It saw its market share grow 0.4% year on year (Y/Y) to 27.4% while many of its other competitors lose out. Moreover, the FTSE 100 firm saw the smallest decline in sales among its two biggest peers, Sainsbury’s and Asda. This could be a result of Tesco’s Aldi price match campaign, as its change in sales outperformed the industry average.

It should also be noted that the UK government recently unveiled a range of measures to combat the cost of living crisis. It’s offering a £650 one-off payment to support the UK’s most vulnerable households among other measures. Consequently, this could ease the decline in supermarket sales.

Good deal?

Is the current Tesco share price a good deal then? Its shares are trading at a price-to-earnings (P/E) ratio of 13, making it slightly cheaper than the FTSE 100’s average of 15. The Tesco stock also has a dividend yield of roughly 4%, which could hedge against a slight decline in its share price. And as the largest supermarket in the UK, I feel that Tesco shares could possibly be the best supermarket stock for me to own.

Nonetheless, I do have a couple of reservations as the retailer still faces tough competition. Sainsbury’s recently committed £500m to lower its prices alongside Tesco, while its German counterparts continue to capture more market share. Furthermore, the trickle-down effect of government relief may not be as impactful as many expect it to be, only bringing a possible temporary relief to the Tesco share price.

So, even though Tesco has plenty of merits as a defensive stock, I don’t see its share price rebounding by a substantial amount given the intense competition and macroeconomic headwinds. Therefore, I won’t be buying Tesco shares any time soon. Instead, I’ll be looking to purchase other shares that could benefit from a potential stock market crash.

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

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John Choong has no position in any of the shares mentioned at the time of writing. 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.

Marks and Spencer (LSE: MKS) shares have been on the up after it adjusted its profits expectations for the full fiscal year to a pre-tax amount of £500 million. Naturally, investor excitement is on the high side at the moment given the turbulent history of this former FTSE 100 stock. But how much of it is hype and how much of it is grounded in good underlying conditions? 

A Great British Business (no pun intended)

At 137 years old, Marks and Spencer is as much a part of the business woodwork as any other household name in Britain. This, of course, has its advantages but as current chairman Archie Norman once stated, Marks and Spencer doesn’t have a “divine right to exist.” The fact that it got booted out of the FTSE 100 is evidence of this. If the past 20 or so years are anything to go by, Marks and Spencer is not exactly the great business it used to be, but executives and investors are hoping that this has finally turned around.

Comparison to FTSE 100 giants

What we know is that M&S reported £269.4m in profit before tax in the first half of 2021, which is a radical turnaround from the £17.4m loss made in the same period last year. However, this is still quite far from the £541m and monstrous £1.14bn in profits before tax that Sainsbury’s and Tesco made respectively in the same period.

The “unvarnished truth”

Competition aside, the latest M&S earnings are certainly promising. However, Marks and Spencer lost its FTSE 100 status for very good reason. The combination of Steve Rowe (CEO since 2016) and Norman (chairman of the board since 2017) has yielded very little in the way of success for the company so far. From a management perspective, nothing has changed in the running of this business.

The underlying business itself has not changed either. The only reason why there was growth in the food sector more recently is that it purchased the retail arm of Ocado, which it paid £750 million for in 2019. This acquisition was long overdue compared to competitors, who entered the delivery game years ahead of Marks and Spencer.

Of particular concern in the long term is that it is continually waging a war on two fronts in two sectors that are extremely competitive – food and clothing retail. On the food side, it has to contend with major competitors like FTSE 100 giants Tesco and Sainsbury’s, and as a fashion retailer, with stalwarts like ASOS and Boohoo.

As a value investor, the fact the company has more than doubled the amount of debt on its balance sheet since 2018 to produce the returns that are only now being seen, is alarming to me. Overall, despite the promise of greater earnings, its limited resources and unimaginative leadership are spread too thin over two very competitive sectors and therefore it may continue to struggle in the long run.

The post This former FTSE 100 stock is back in vogue but leaves much to be desired appeared first on The Twelfth Magpie.

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Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Tesco, and boohoo 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.

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.

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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.

The Morrisons (LSE: MRW) share price barely moved this morning, despite the company revealing a big fall in profit in its interim numbers. 

Falling profit

Total revenue (including fuel) for the six months to 1 August rose 3.7% to just over £9bn. But like-for-like sales (excluding fuel and VAT) were down 0.3%. This was in sharp contrast to the 8.7% increase reported in the same period last year.

Online like-for-like sales jumped 48% and are now up over 237.1% compared to two years ago, helped by the company’s relationship with Amazon. A total of 328 stores are also now working with Deliveroo to provide grocery home delivery. 

However, profit before tax and exceptionals tumbled 37.1% to £105m. This was due to £41m of pandemic-related costs and £80m in lost profit in sales from cafes, fuel and food-to-go. On a statutory basis, pre-tax profit fell 43.4% to £82m.

Looking ahead 

Morrisons made no change to its guidance. The UK supermarket expects profit before tax and exceptional items to be above the £431m recorded for 2020/21. However, this is dependent on a reduction in Covid-19 costs, lower lost profit and the company’s ability to manage cost increases relating to its supply chain.

Further ahead, the company expects “material benefits” in 2022/23 as a result of Covid-19 costs not being repeated and the “full recovery of lost profit”.

No dividend

Morrisons also confirmed it would be recommending Clayton, Dubilier & Rice’s offer of 285p per share to shareholders. The latter will be required to approve this offer at the company’s General Meeting in mid-October. This is likely to be the reason for the static share price today.

As a result of the expected takeover, the £7bn cap confirmed that it would not be paying an interim dividend to shareholders. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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 the MKS share price is jumping

Despite the “highly uncertain” trading outlook at the beginning of the year due to Covid-19 constraints, the company said it had seen an “encouraging performance” over the 19 weeks to 14 August. This, it believes, is evidence that the strategy to transform the business is working. 

Revenue from the company’s Food arm “outperformed” over the period. Thanks to strong trading at its larger stores, sales were up 10.8% on last year. They’re also up 9.6% from two years ago. Even hospitality and franchise are “progressively improving” as restrictions have eased. 

Of course, the food offering at Marks has never really been the issue. It’s the company’s clothing range that’s continually struggled. However, revenue at this division almost doubled (+92.2%) on last year with smaller sales and promotions helping full-price sales rise approximately 9% on pre-pandemic numbers. 

There’s also been a good recovery in sales away from Marks’ home market. International revenue rose a little under 40% over the period, despite sporadic lockdowns and Brexit-related delays. 

All told, group revenue was 4.4% higher than in 2019/20. 

But can this be sustained?

The company is inclined to think momentum can be maintained, even if “pent up consumer demand” may be partly responsible for this return to form. 

Accordingly, the FTSE 250 stock now expects adjusted pre-tax profit to be “above the upper end of previous guidance of £300m-£350m“. I can’t remember the last time when those words were uttered in a statement from the company. No wonder the MKS share price is up 11%, as I type.

That said, I do think it’s important to consider the reasons for me to continue avoiding the stock. 

Inflation concerns

For one, the encouraging outlook is dependent on Covid-19 being effectively beaten. As things stand, I don’t believe we can be completely confident of this. Regardless, the slow recovery in footfall and normal working patterns mentioned today could persist. 

Like many listed companies, M&S could also be impacted by inflation and supply chain issues going forward. To date, it’s managed to mitigate this by reducing costs. However, there’s clearly a limit as to how far this can go. Should prices continue rising, margins could get squeezed even tighter.  

Third, I need to put today’s numbers in perspective. Clothing sales might be back to 2019/20 levels, but I wouldn’t take this as evidence the company has shaken off its ‘frumpy’ image just yet. A rebound isn’t the same as shooting the lights out. Moreover, its physical stores continue to struggle with sales down by almost 20% compared to 2019/20. 

A long way back

As encouraging as today’s update is, I think the MKS share price has a long way to go before we can really be sure the company is back on form. Despite rising 45% over the last year (including today’s gain), the stock has still roughly halved in value since 2016. Oh, and there’s no dividend stream either.

In conclusion, I’ll be keeping an eye on Marks for now. For the reasons mentioned above, I won’t be adding the shares to my own portfolio just yet. 

The post Here’s why the Marks & Spencer (MKS) share price is flying today 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 no position in any of the shares mentioned. 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.

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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.

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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.