I reckon every portfolio, not just those of novices, should have a couple of “buy and forget” cornerstones — the kind of shares that you really are not expecting any surprises from for the next decade or two.
One of the shares I’ve picked so far, Centrica, is one of them (Ed Milliband notwithstanding), and there’s another candidate in Unilever. But today I’m taking a quick look at what I think is one of the best “buy and forget” shares there is, Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US).
Sure, Tesco lost the plot a little in the lead-up to Christmas 2011, and if you’d just bought the shares you’d have suffered a quick loss. But that was never going to be a long-term problem, not for the UK’s biggest supermarket. Tesco’s market capitalisation of £30bn dwarfs Sainsburys‘ £7.6bn and Morrisons‘ £6.7bn, and its 2013 turnover exceeded the two of them put together by more than 50%!
The biggest, by far
Tesco has a 30% share of the UK’s grocery market, with Asda second on 18%, and that really is not going to change very much at all — the UK market is saturated, the big sellers are firmly entrenched, and they tussle for fractions of a percent. In fact, between March 2011 and March 2012, the year spanning the fateful Christmas, Tesco’s market share dropped by a mere 0.4 percentage points from 30.6% to 30.2%.
Earnings per share did dip for the year to February 2013, and it looks like we’ll have to wait until 2o15 to see a return to growth. But all along the shares have traded below the FTSE’s long-term average P/E of 14, with the ratio falling as low as around 8 in the aftermath of the Christmas trading panic. The dividend? Motoring along at around 4%, held flat for 2013, and due to start rising again for the coming year.
And look at the bigger picture. Who pioneers online grocery shopping? Tesco does, and the others catch up — Morrisons still isn’t there. In-store banking? Tesco. Clothing, books, DVDs… you’re getting the picture.
International
And that’s just the UK. Which of the FTSE’s big supermarkets has built up years of global understanding through international expansion? Yep, same answer. Tesco is prepared to make the effort and take the risk — and yes, suffer the pain when it doesn’t work, like in Japan and the US. But Tesco’s businesses in Thailand, South Korea, Malaysia, China and its ventures into Eastern Europe are all doing well and looking good for the future.
Since 2004, Tesco has had more floor space outside the UK than in its home market — though higher sales density does mean it still gets nearly 70% of its turnover from the UK.
Now, admittedly, Tesco hasn’t been much of a growth share, and through the recent recession the price has been a bit erratic and, overall, is down a bit. But that 4% dividend per year, compounded over the long term, will have provided a steady overall return for shareholders.
I guess I should also mention that Warren Buffett is a big long-term fan of Tesco, and he’s not too bad at the old investing lark.
