3 Numbers That Make J Sainsbury plc A Strong Sell

Royston Wild explains why J Sainsbury plc (LON: SBRY) could be in line for a fall.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I believe J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) is a dicey stock selection.Sainsbury's

3

The fragmentation of the British grocery space has been playing out for some now, as Aldi and Lidl have been grabbing trade from bargain hunters and the likes of Marks & Spencer have enjoyed surging popularity in the premium goods segment.

And while significant own-brand product development and marketing at Sainsbury’s had enabled it to avoid the humiliation of plummeting sales seen at Tesco and Morrisons, signs are that the tide is beginning to shift here, too.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

The London firm announced earlier this month that like-for-like sales declined for the third consecutive quarter during July-September, dropping 2.8% during the period. By comparison, Sainsbury’s had achieved 35 consecutive quarters of like-for-like sales expansion prior to the start of the year, underlining the growing success of the competition.

12,000

Undoubtedly the splendid success of the budget chains has been the undoing of the mid-tier retailers, a phenomenon that is dragging the market into an intense price war. Indeed, Sainsbury’s announced in September that it was cutting the cost of over 12,000 products, as well as plans to compare its prices with those at Asda instead of Tesco as part of its revamped price match programme.

However, these measures are destined to play havoc with margins at the firm, and still fails to match the significant price differences between the ‘Big Four’ retailers and the discounters. In my opinion Sainsbury’s will have to come up with something more to stem the tide of sales losses.

13.5

Against a backdrop of relentless earnings expansion in previous years, Sainsbury’s has been able to reward shareholders with relentless annual dividend growth.

But with a worsening trading environment set to batter the bottom line — earnings dips of 15% and 3% are pencilled in for this year and next — the supermarket is expected to follow rival Tesco and take the blade to the payout for the first time in donkey’s years.

Indeed, a dividend of 13.5p per share is anticipated by City brokers for the year ending March 2015, a figure that would translate to a 22% on-year drop. And an extra 5% fall, to 12.8p, is expected for the following 12-month period.

These numbers still create terrific yields of 5.9% and 5.6% respectively, comfortably beating the 3.5% FTSE 100 forward average. But investors should be prepared for more aggressive dividend cutting should the competition continue to up the ante and Sainsbury’s profits plummet further than projected.

Should you buy Lloyds Banking Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »