Once again, England is obsessing over Wayne Rooney. Why has this once-mighty force lost his edge? Has he fallen into permanent decline? Should we continue to invest our hopes in him? I have been asking exactly the same questions about retail supermarket giant Tesco (LSE: TSCO).
Tesco has plenty in common with England’s struggling forward. It dominated the opposition for a decade, using power and pace to crush lesser rivals such as Asda and J Sainsbury. But lately its form has dipped, the magic has gone. Tesco’s year-on-year sales figures have fallen 3.7%. Markets seriously doubt whether current management, led by chief executive Philip Clarke, has the right tactics and strategy to turn things round. More of us are dropping it from our portfolios.
Shell Isn’t Sure, Either
Tesco isn’t the only stock displaying Rooney-esque tendencies. Anglo-Dutch oil major Royal Dutch Shell (LSE: RDSB) has also been off the pace. Q1 earnings of $4.5 billion were sharply down from $8 billion one year earlier. Broker UBS recently complained the stock was losing “near-term momentum”, just as Rooney did as he approached the penalty box against Italy.
Shell once looked like a world beater. Lately, it has been scaling back its ambitions, pulling out of shale gas, selling its stake in the Brazilian deepwater project BC-10, and turning down major projects in Australia and Louisiana. Instead of rampaging up and down the line, it prefers to play the safe, square ball.
They’re Still Big Earners
Rooney, Tesco and Shell shouldn’t be written off. They are all major global brands. They also remain highly cash-generative, despite their slump in status. Rooney earns an astonishing £300,000 a week. Tesco posted a £2.3 billion pre-tax group profit last year. Shell made a £33 billion profit. Rooney won’t share his fortune with you, but Tesco will pay you a generous 5.1% a year, while Shell currently gives you 4.3%. These are star-studded yields.
Despite their troubles, these three institutions have turnaround potential. All Rooney has to do is bundle in a winning goal against Uruguay on Thursday, and he’ll be on the comeback trail. Tesco has a harder task because it has to see off competition from the Germans, in the shape of nippy discounters Aldi and Lidl. But if it cracks China, or UK sales remain tight at the back, the confidence could flow again. At 9.1 times earnings, it’s worth a flutter.
Van The Man
Shell can also discover its shooting boots. New chief executive Ben van Beurden has raised spirits with his $15 billion divestment programme and campaign of targeted cost savings. So far, the share price has sidestepped a rash challenge from Russia and the Ukraine to rise 15% in the last six months. In the longer run, investors should score.
Take a look at your own portfolio. The chances are you will find one or two ‘Wayne Rooneys’ in there. The tough question is whether to hang on, in the hope they will recover their form, or look for something younger, fresher and faster…
