After all, the chain has seen its bottom line shrink during each of the past four years as competitive pressures have grown. However, City analysts believe Tesco’s turnaround strategy should set it up for resplendent earnings expansion from this point on.

Indeed, current forecasts suggest a 120% earnings detonation during the period to February 2017, and a further 30% rise in the following year.

Booker boom?

And glass-half-full investors would have no doubt been encouraged by Tesco’s blockbuster takeover attempt for Booker Group (LSE: BOK) late last month.

The proposed £3.7bn merger should see Britain’s biggest supermarket bulk up its position in the convenience store market by taking the Londis and Budgens fascias under its wing. Also, Tesco’s move will see it acquire a sprawling cash-and-carry empire.

But it’s Booker’s position as one of the UK’s biggest wholesalers that attracted Tesco to pile in. The business supplies a wide range of fresh and non-perishable foodstuffs to restaurants, pubs and stores the length and breadth of the country.

The supermarket’s chief executive Dave Lewis commented that the deal “will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital.”

More earnings woe predicted

But Tesco isn’t the only blue-chip supermarket to undertake potentially-transformative acquisition activity to turn around its ailing fortunes.

J Sainsbury (LSE: SBRY) famously forked out £1.4bn in 2016 to buy catalogue giant Argos, a move designed to create additional revenues streams and reduce the impact of rising competition in its traditional grocery business.

And the takeover appears to be rich with logic. While like-for-like sales at Argos rose 4% during the 15 weeks to January 7, for example, underlying sales for Sainsbury’s traditional operations crept just 0.1% higher.

Despite Sainsbury’s initiative however, ongoing stress in its core operations is expected to keep the bottom line sinking, at least according to analyst forecasts. Drops of 16% and 4% are chalked-in for the years to March 2017 and 2018 respectively.

Not out of the woods

While Tesco’s latest move could prove a stroke of genius, I believe the risks still facing the business aren’t fully factored-in at current share prices. The supermarket changes hands on P/E ratios of 25.9 times for fiscal 2017 and 19.6 times for next year, sailing above the FTSE 100 forward average of 15 times.

Although the proposed Booker Group takeover gives Tesco a strong position in both ‘in home’ and ‘out of home’ segments, the move adds an extra layer of complexity to Tesco’s operating model, and could arguably draw the firm’s eye away from turning around its core retail operations.

Besides, the deal could still theoretically be derailed on competition grounds as the Association of Convenience Stores lobbies the Competition and Markets Authority.

And I retain a particularly bearish stance concerning the long-term outlook for Sainsbury’s, particularly as — unlike Tesco and Morrisons — the London-based operator continues to see sales slipping through the floor.

With no light at the end of the tunnel as yet, I reckon the grocer remains an extremely poor growth pick, in spike of conventionally-cheap P/E ratios of 12.8 times and 13.3 times for this year and next.

The post Is this Footsie growth stock finally a buy following recent M&A news? appeared first on The Twelfth Magpie.

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

Food fight

The big grocers have inflicted a decade of misery on shareholders. Exactly 10 years ago, sector giant Tesco (LSE: TSCO) traded at 500p, today you can pick up its stock for 199p, a drop of an astonishing 60% over a decade. Over the same period, J Sainsbury (LSE: SBRY) plunged 38% from 412p to 252p, while Morrisons (LSE: MRW) fell 16% from 279p to today’s 234p. Fresh and tasty they are not.

Management hubris is partly to blame, especially at corporate jet loving Tesco, whose plans for global domination ended in a fight for survival at home. The slow economic recovery from the financial crisis has made shoppers fixate on price and opened the gates to German price warriors Aldi and Lidl, who have both passed the dinner party test, where people are no longer ashamed to say they shop there (rather it has become a badge of honour).

Healthy living

Brexit was another blow. Weaker sterling has done little to help UK-focused grocers, but instead has pushed up input costs from imported food and clothing. However, the resilience of UK plc – the fastest growing major economy in 2016 – continues to inspire.

New figures out today from Visa show that consumer spending hit a two-year high in December, with food spending up 2.9% year-on-year. Recent analyst reports also paint a relatively positive picture. Jefferies reckons the supermarkets enjoyed a healthy close to 2016 but warned the outlook for 2017 is murkier, with challenged UK consumers continuing to embrace the discounters. 

Narrow margins

JPMorgan Cazenove warned that valuations are expensive and expectations high, and said the news flow is turning negative. Personally, I have been impressed by the way Tesco and Morrisons have fought back over the last couple of years. It has come at a cost, however, with one price war after another inflicting constant damage on margins.

British consumers remain pretty positive although the latest fall in the pound could aggravate inflationary pressures. Supermarkets face a tough choice: retain business by absorbing higher costs while further squeezing margins, or pass price hikes on to customers and risk losing more ground to the German firms.

Food, glorious food

Investors who swept the supermarkets out of their portfolios missed out on a bumper 2016, with Tesco rallying 40% and Morrisons up 57%. However, the falling pound, rising prices, stagnating wages and Article 50 uncertainty will make it hard to repeat the trick.

Tesco’s forward valuation of 20.3 times earnings does little to lift my spirits, especially given the lack of a dividend. I admire Morrisons feisty comeback but not enough to buy it at 20 times earnings. Sainsbury’s, which trades on a a forecast 12.3 times earnings and yields 4.8%, would be my pick of the three, but making up recent lost ground won’t be easy given current uncertainties. 

The post 2017 could be another tough year for the grocers appeared first on The Twelfth Magpie.

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

Why is this a big deal? Simply because fund managers and index funds focused on the biggest and best known companies may need to sell their investments, thereby placing further pressure on the prices of those involved. This, in turn, may lead those with smaller holdings (such as private investors) to jettison their shares out of fear that these businesses will struggle to recover.

With this in mind, let’s look at two companies that look vulnerable to relegation.

Share price slump

Despite benefiting from the dip in oil prices over the last year or so, airlines such as Luton-based easyJet (LSE: EZJ) have been hit hard in other ways. Terrorist attacks and air traffic control strikes have led many tourists to change their holiday plans. All that before the consequences of Brexit have even been considered. Collectively, these events have hit easyJet’s share price hard. Priced at 1627p exactly one year ago, they now trade at 1004p.

Although not a victim of external events to quite the same extent as its FTSE 100 peer, Royal Mail (LSE: RMG) has still come under pressure. Since reaching a 52-week high of 541p back in May, shares in the £4.58bn cap postal service have recently dipped to 455p after the company reported that letter volume had dropped by 4% — something the 500 year-old business attributes to weakening economic conditions after the EU referendum.

Great opportunity

Based on valuations alone, I actually think that a descent into the FTSE 250 would be a great time to build or add to a position in either company. 

easyJet’s shares trade on a rather cheap forecast price to earnings (P/E) ratio of 11.5 for 2017. Despite a reduction in the dividend, the yield still comes in at 4.3%, easily covered by earnings.

Royal Mail’s shares have an almost identical forecast P/E for 2017 and come with an even bigger 5% yield. Compare this to what you would get from your typical savings account and the rewards seem to outweigh the risks.

But it’s not just the attractive valuations that make me think these share are worth buying. While there are plenty of companies that don’t return to the FTSE 100 at a later date, that’s not to say it never happens. Just look at Morrisons. Relegated to the FTSE 250 in December 2015, the supermarket jumped straight back up in March thanks to its lucrative deal with Amazon.

Should our departure from the EU not be the nightmare some are predicting, the same could happen to either Royal Mail, easyJet or both. As always, its vital to look at the bigger picture when evaluating whether it’s worth hanging on to a particular investment. 

So, while a descent into the market’s second league won’t be welcomed with rapturous applause, nor does it mean that private investors should automatically reduce their holdings in either company. Given time, I think sentiment towards easyJet and Royal Mail will return.

The post Are these two companies destined to leave the FTSE 100? appeared first on The Twelfth Magpie.

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

This unwelcome news will certainly put a damper on celebrations at WM Morrison (LSE: MRW) after the northern-centric grocer recorded its third straight quarter of positive like-for-like sales in Q2. Morrisons has been able to engineer this mini turnaround by selling off its many convenience stores, investing heavily in modernising existing supermarkets and doubling down on its wholesale offerings.

Aldi’s investment won’t halt the positive results from Morrisons’ much-needed internal improvements, but it does illustrate that the larger problem facing the sector is no closer to being solved.

This problem is, of course, the vicious price wars that have destroyed margins across the industry as a result of the increasing popularity of German budget chains. We have to look no further than the dramatic fall in Morrisons’ operating margins to understand just how devastating these price cuts have been. Underlying operating margins during the latest half year were 2.6%, fully half of the 5.2% posted this time five years ago.

And, while underlying margins did move in the right direction over the last year, up 26 basis points, the traditional grocers are still in trouble. This is because Aldi and Lidl are still expanding their market share at a steady clip, forcing traditional competitors into further discounts to retain customers.

According to Kantar Worldpanel, this time last year Morrisons claimed 10.7% of the UK grocery market, while the two German firms accounted for 9.8%. Fast forward to today and Morrisons’ share is down to 10.4%, lower than the 10.8% controlled by the Germans.

Morrisons is moving in the right direction due to cost cuts and revamped offerings, but the seemingly inexorable rise of the German firms and the price wars left in their wake make me believe there’s a definite ceiling to what the ‘new’ Morrisons can achieve.

Betting on Argos

It’s a similar story for Britain’s second largest grocer, J Sainsbury (LSE: SBRY). Sainsbury’s market share over the past year has fallen from 16.2% to 15.9%. Perhaps seeing the writing on the wall, Sainsbury’s went out and made a rather dramatic £1.4bn acquisition earlier this year in the form of Argos parent Home Retail Group.

Sainsbury is hoping that putting Argos branches inside existing big box supermarkets will entice customers into branches suffering from lower footfall as shoppers shift back to favouring high street express locations.

Now, this could work swimmingly. But there’s enough academic literature out there describing the pitfalls from mergers such as these to scare even the most optimistic investor. Furthermore, investors with a long memory may remember a similar business plan in the late 2000s when grocers raced each other to open massive hypermarkets selling clothes and electronics alongside food. Needless to say, that plan didn’t work out too well.

Add in the fact that Argos was already struggling due to competition from Amazon and the logic behind this deal looks increasingly fuzzy. Sainsbury’s management should be commended for thinking outside the box, but with competition for food customers only heating up I won’t be buying shares of the grocer/retailer anytime soon.

The post Aldi’s £300m investment could create further headwinds for these struggling grocers appeared first on The Twelfth Magpie.

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

Shop horror

Over the last month, Tesco (LSE: TSCO) has continued its long-term decline with the share price falling more than 12%. WM Morrison (LSE: MRW) and J Sainsbury (LSE: SBRY) have also fallen, albeit with a slightly slower drop of just over 5%. Brexit has become the catch-all excuse for any company with a bad story to tell but in this case the supermarkets have a point.

The shock referendum result fuelled the biggest drop in consumer confidence in more than 26 years in July, according to market researcher GfK, with shoppers bracing themselves for further erosion of their spending power as the weaker pound drives up the cost of imported goods and ingredients. Brexit isn’t the only factor behind the 1.1% drop in sales in the four weeks to 17 July, the worst performance in two years, as measured by Kantar Wordpanel. The disappointing British summer has also hit revenues, with rain and wind dampening shoppers’ appetites.

This means war

Now Morrisons is throwing down the gauntlet to its rivals by unleashing a new price war as it looks to blow shoppers out of their post-referendum malaise. It plans to cut the price of more than 1,000 products by an average of 18% in a bid to lure them away from mighty discounters Aldi and Lidl, which saw sales rise 11% and 12.5% respectively in the three months to 17 July, lifting their market share to 6.2% and 4.5%. Fast-growing upmarket rival Waitress and Co-op’s small local stores are also nibbling away at Tesco’s, Sainsbury’s and Morrisons’ market shares.

Price cuts will help Morrisons shoppers, but I can’t see that they’ll do much for its profits or share price, and they’ll also inflict further damage on Tesco and Sainsbury’s, especially if they’re forced to join in the price-slashing battle. All is not lost, Tesco’s earnings per share (EPS) are forecast to grow 133% in the year ending 28 February 2017, reducing its valuation from today’s 45 times earnings to a still pricey 24 times. This offers some relief following five years of negative EPS (double-digit negatives in four of those years, mark you). Tesco’s market share is falling but at the slowest rate for two years, and it remains the grocery sector big boy with 28.3% of sales.

Not so supermarkets

Sainsbury’s has a share of 16.3% but is also declining slowly, although trading at 9.19 times earnings and yielding 5.43% it remains my pick of this shop-soiled trio. Morrisons has done better than I would have expected in recent months and while sales continue to slip it still boasts 10.7% market share. However, trading at 23.05 times earnings and yielding 2.78%, I can think of a dozen different companies I would rather invest in today.

Tesco, Sainsbury’s and Morrisons are struggling to shake off the spectre of long-term decline, and a fresh price war could wound them all. I will expend my ammunition elsewhere.

The post The new grocery price war could destroy the supermarkets appeared first on The Twelfth Magpie.

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

Pets’ share price has come under pressure since November due to slower-than-expected growth. In a trading statement on 30 October, Pets said that like-for-like revenue growth had fallen to 1.8% during the first half of the year, down from 4.2% for the previous full year. Mr Wood said that “trading in parts of the business” had been “weaker than expected”.

Like-for-like sales growth rose to 2.2% during the firm’s third quarter, but the full-year result still seems likely to be lower than last year. Pets at Home appears to be relying on expansion to boost sales.

Earnings per share growth is expected to fall to 5% in 2016/17, but the shares trade on a forecast P/E of 18. This seems high enough to me, so I’d rate the shares as a hold.

Inland Homes

Property developer Inland Homes (LSE: INL) is a relatively small player, but the firm’s shares have climbed by 223% over the last three years, thrashing the wider market. Is it too late to buy into this small-cap success story?

Inland published its interim results today. Pre-tax profits rose by 275% to £21.5m thanks to a one-off £14m boost resulting from the revaluation of its portfolio. Excluding this paper gain, I estimate that underlying pre-tax profit rose by around 30% to £7.5m, which is still pretty decent.

Of course, property developers’ earnings are heavily cyclical. I suspect we’re close to the peak of the current cycle.

A more conservative valuation measure is book value. Inland has started using the EPRA valuation technique to calculate net asset value per share. This includes a value for unrealised development gains on top of the current net asset value of its land and developments.

Inland’s net asset value is 53p per share, but its EPRA net asset value is 84.4p. This is broadly in line with the current share price. I’d argue that this more generous valuation measure suggests that Inland’s shares offer limited upside. I’m not tempted to buy at the moment.

Morrison

WM Morrison Supermarkets (LSE: MRW) has been a surprisingly strong performer this year. The shares are now up by 45% from their December low of 140p. Recent results confirmed slow but steady progress with the firm’s turnaround plan.

However, given that Morrison now trades on 19 times 2016/17 forecast earnings, is it time to take a profit? There’s some logic to this, but I’ve decided to continue holding for three reasons.

Firstly, Morrison’s cash flow has proved to be quite strong. Net debt has come down faster than expected and this should continue.

A second attraction is that the recent Amazon deal should help improve volumes for Morrison’s food manufacturing business. Profit margins will be low, but using spare capacity to produce food for Amazon should reduce unit costs. This should help maximise the group’s overall profits.

Finally, Morrison has a large freehold property portfolio and may yet become a bid target.

The post Are Pets at Home Group PLC, Inland Homes PLC And WM Morrison Supermarkets PLC A Buy After Latest News? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Wm Morrison Supermarkets. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Doing the right things

That’s certainly what I thought when I noticed that mining and commodities giant Glencore (LSE: GLEN) shares have stormed up 125% since 20 January, to 154p. Given that full year results released on 1 March reported a 69% fall in earnings per share before adjustments, that might seem like a pretty contrary reaction — especially as cost savings and reduction of capital expenditure are the order of the day.

The share price strengthening seems to be mainly on the back of modest recoveries in commodities prices, with both iron ore and copper up around 15% since their recent low points, and oil heading ever closer to $40 a barrel, from under $30 in mid-January. The trouble is, the slump in demand from China doesn’t seem to be anywhere near its end, and we still don’t know how hard the country’s growth slowdown is going to be.

While Glencore’s debt is rapidly moving in the right direction and the company seems to be doing things right just now, I think we’re unlikely to have seen the end of volatile commodities prices just yet and Glencore is still a risky choice in the medium term.

Resurgent supermarket

Even before its just-announced tie-up with Amazon, shares in Wm Morrison (LSE: MRW) had been climbing nicely, and they’re now up 50% since 11 December, to 209p. Some of that will be due to a Christmas shopping period that really wasn’t too bad. And now that Morrison’s “ambient, fresh and frozen products” are to be sold to Amazon Prime Now and Amazon Pantry shoppers, at least some of the damage done by the supermarket chain’s painfully late entry into online shopping will presumably be ameliorated — and Tesco will surely be stinging at not being the one to get the plum job.

But I’m still a bit twitchy about supermarket shares on a forward P/E of over 19, especially as price competition is sure to get harder as Aldi and Lidl keep rolling out stores almost as fast as you can work those horrid self-serve checkouts.

Recovering oil

The rising price of oil has helped Cairn Energy (LSE: CNE) shares to a 37% rise since 20 January, to 173p — although to put that into perspective, the price is still down 60% in five years. Cairn isn’t profitable yet, but unlike some smaller strugglers it doesn’t have a debt millstone around its neck. In fact, as of 31 December 2015, Cairn had net cash on its books of $603m, saying it is “fully funded … to deliver its exploration and appraisal programme, as well as to take its North Sea developments through to free cashflow generation in 2017“.

And it also has the means to buy up assets when they’re cheap, having revealed on 22 February that it has acquired another 4.5% of the North Sea Kraken field to take its stake to 29.5%. I’m usually very wary of not-yet-profitable oil explorers, but Cairn looks like a promising prospect to me.

The post Are Glencore PLC (+125%), WM Morrison Supermarkets PLC (+50%) And Cairn Energy PLC (+37%) Storming Back? appeared first on The Twelfth Magpie.

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Moving lower

The market reacted badly to insurance play Beazley’s (LSE: BEZ) announcement on Thursday that it plans to relocate its headquarters from Dublin to London. Shares in the business were last dealing 5% lower from Wednesday’s close.

Beazley — which moved to the ‘Emerald Isle’ six years ago — advised that the plan “will simplify the management and decision making of the group and allow new Beazley shareholders access to a UK dividend stream.” The firm added that there should be no changes to its tax rate following legislative changes in the Finance Act 2012.

A vote will be held on the issue on 24 March. But regardless of the outcome of next month’s meeting, I believe a backcloth of rising competition and falling rates in its markets makes Beazley a risk too far at the present time.

Indeed, the City expects the insurer to endure a 23% earnings slip in 2016 alone, and further dips are predicted further out. I do not believe a consequent P/E rating of 13.8 times sufficiently reflects Beazley’s high risk profile.

Supermarket struggles

The newsflow surrounding embattled grocer Morrisons (LSE: MRW) just keeps getting worse and worse.

Discounter Aldi pulled its tanks directly onto the Bradford firm’s lawn this month with its new ad campaign, which claimed it undercuts the so-called ‘Big Four’ supermarkets on price by as much as 40%. The German giant also announced plans to open a further 80 stores by the end of the year as part of its aggressive expansion scheme.

Morrisons has persistently failed to stem the march of both Aldi and Lidl, with price reductions of its own failing to dent the rising popularity of its discount rivals. Indeed, the supermarket has introduced little more than token initiatives — like the rollout of wi-fi ‘hotspots’ and discounted coffee in its stores this month — to draw back customers.

Unsurprisingly the City expects Morrisons to have suffered yet another earnings fall in the year to January 2016, and while a 21% bounceback is predicted for the current period, I believe such predictions are fanciful at best amid rising competitive pressures. Besides, a consequent P/E rating of 17.9 times is far too expensive for a stock with such a poor long-term earnings outlook, in my opinion.

Stuck in a hole

Iron ore digger Beowulf Mining (LSE: BEM) also fell foul of the market in Thursday’s session following news of a capital raising, and the stock was last dealing 30% lower from yesterday’s close.

Beowulf advised that it was planning to generate £1.25m through the issuance of shares at 3.25p each. The company commented that “low metal prices and a broad lack of confidence has led to an unfavourable environment for exploration and development companies to raise capital and advance with project development”.

And worryingly Beowulf added that “we expect market conditions to remain difficult for the mining sector,” a view that I cannot disagree with.

 Sure, iron ore prices may have ticked up more recently, but I believe cooling Chinese steelmaking activity — combined with rampant production activity from industry giants like Vale and BHP Billiton — should prompt a severe reversal and keep Beowulf running at a loss in 2016 and beyond.

The post Should You Buy Beazley PLC, WM Morrison Supermarkets PLC & Beowulf Mining plc Today? appeared first on The Twelfth Magpie.

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Shareholders of Morrisons were given reason to cheer over the Christmas period as like-for-like sales during these nine weeks rose 0.2%, the first sales growth in four years for the grocer. Overall sales for the period were driven down 2.6% but this was largely due to the closing of 21 large supermarkets and the sale of 140 convenience stores since last year.

The closing of unprofitable stores and focus on online sales, which nearly doubled year-on-year for 2015, are the core of management’s plan to return Morrisons to the comfortable profitability it once enjoyed. However, even if the company can right the ship internally it’s still facing the gale-force headwinds affecting all the traditional grocers. The rise of low-cost rivals Aldi and Lidl continued over the Christmas period and Morrisons was forced to keep discounting products in order to maintain market share, which still fell to 11%.

Discounts have seen Morrisons margins fall to 2% and 2016 is forecast to see further declines in pricing power. While dividend payments should be safe going forward, shares are only forecast to yield 3.5% this year. For this level of yield investors can find companies with much better growth prospects than Morrisons provides.

Over-exposed?

Yields for emerging markets-focused Standard Chartered have plummeted to 2.4% on the back of a dividend cut and rights issue in late 2015. If exposure to poor-performing Asian and African economies wasn’t enough short-term bad news for Standard Chartered, the estimated $1.9bn loaned to commodities trading firms makes it the European bank most exposed to possible defaults in the sector.

Although plans to ruthlessly cut costs and maintain focus on Asia may work in the long run, there are much better options for investors seeking both growth and dividends for years to come. HSBC being one possibility I have discussed. 

Danger ahead

Rio Tinto’s fabulous 9% dividend is sure to catch the eye of investors of every stripe. Rio’s balance sheet is in considerably better shape than its major peers, and it has continued its share buyback programme as well as increased the dividend paid in the first half of last year. Despite this good news, danger may lurk just beneath the surface for the commodities giant. 

Iron ore mines that were started years ago are just now beginning to come on line and Chinese demand for the metal is set to decline some 4% in 2016. So prices won’t pick up anytime soon. For Rio, which derived some 71% of earnings from iron ore according to its latest figures, this means further red ink for the bottom line is forthcoming. With questions mounting over Rio’s ability to maintain dividend payouts, I expect further pain for share prices in the near future and would recommend avoiding the poisoned apple the 9% yield represents.

The post Is It Time To Buy Standard Chartered Plc, Rio Tinto Plc & WM Morrison Supermarkets Plc For Dividends? appeared first on The Twelfth Magpie.

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According to market research firm Kantar Worldpanel, J Sainsbury (LSE: SBRY) was the only one of the big four that reported sales and market share growth during the holiday period, with Tesco (LSE: TSCO), Wm Morrison Supermarkets (LSE: MRW) and Asda (owned by US giant Wal-Mart) failing to achieve those two key milestones.

Not that bad?

Although Sainsbury’s total retail sales in its third quarter to 9 January grew by 0.8% (excluding fuel), like-for-like sales actually dropped by 0.4%. Still, in the seven days leading up to Christmas the slightly upmarket supermarket saw a 2.6% rise in consumer transactions over last year, to more than 30m.

Over at Tesco, meanwhile, UK like-for-like sales in Q3 dropped by 1.5% (excluding fuel), although the six weeks to 9 January saw a 1.3% rise. International sales did significantly better with a like-for-like rise of 4.1%, but that’s a shadow of its former importance as Tesco has been withdrawing from troubled overseas markets and focusing on the UK.

Morrison saw total sales fall 1.2% in the nine weeks to 3 January, though like-for-like sales rose slightly by 0.2% (again excluding fuel). That’s not too impressive, but the firm did say: “We are beginning to attract customers back to Morrisons, with the LFL Number of Transactions up 1.3% year-on-year in our core supermarkets“. Online sales grew nearly 100%, but that was from a very low base.

Price recovery?

Tesco’s share price has perked up by 14% since 7 January, which is easily the best of the three. Morrisons shares are up 8% since 5 January, while Sainsbury shares have lost 6% in the same timescale. The reason for these relative performances seems to be that Tesco performed better than (or at least not as badly as) expected, and analysts really do seem to think the only way is up. They have a 45% drop in EPS pencilled-in for the year ending February 2016, but expect a 78% recovery the following year, though that does still represent a two-year fall overall.

And P/E multiples of 31 this year followed by 17 next don’t give me the same bullish feeling that the City seems to have right now.

I feel pretty much the same about Morrisons, which is also expected to see EPS return to growth in the year to January 2017 to give us a P/E of 14. In this case the analysts are similarly bearish. Sainsbury has easily the lowest forward P/E ratings, at around 11, but we’re still being told to expect falling EPS at least until March 2016, and that doesn’t fill me with an urge to go buying the shares.

No good reason to buy

The real reason I still wouldn’t go anywhere near these supermarkets is that I see much better bargains out there. Lloyds Banking Group is on a P/E of only 8 with dividend yields expected to rise above 5% this year, and Barclays is on a P/E of only 7.3 with dividends expected to yield 3.6%. Then we have Royal Dutch Shell and BP. Their share prices have slumped but they should recover strongly when oil picks up (and in the meantime they seem keen to keep paying very high dividends).

No, I wouldn’t buy supermarkets now, simply because there really is no need to.

The post Do Xmas Sales Mean We Should Buy Tesco PLC, J Sainsbury plc And Wm Morrison Supermarkets PLC? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.