Tesco PLC, J Sainsbury PLC And WM Morrison Supermarkets PLC: Are The Supermarkets Value Traps?

…or are Tesco PLC (LON: TSCO), J Sainsbury PLC (LON:SBRY) and Wm Morrison Supermarkets PLC (LON:MRW) turnaround prospects?

| 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.

We used to think of the supermarkets rather like we think of Apple: a remorseless trend of expansion, growing profits and a growing share price. The more smartphones Apple builds, the more they sell. The possibilities seem almost infinite.

No tree grows to the sky

But no tree grows to the sky; eventually the tree’s height is countered by the pull of gravity. Growth always has its limits. And so it has proved with the supermarkets.

The supermarkets are now starting to think less like Apple, and more like OPEC. They have realised that, while retail demand in the UK has remained largely static, supermarket supply has been increasingly linearly all the way since the 1950s.

Should you invest £1,000 in Sainsbury's 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 Sainsbury's made the list?

See the 6 stocks

It’s been a simple process. Each decade the supermarkets have built more shops, and they have increased their sales, and their profits. And their share prices trended higher and higher. This continued until about the time of the Credit Crunch, when something interesting happened.

Ever since the Great Recession the supermarkets have still been expanding, yet they have no longer been growing sales, and their profits have begun to fall. The share prices of these retail giants have begun to trend downwards.

A long road to recovery

This year the supermarkets’ results have been terrible. It’s as if they have hit a brick wall. People initially talked about Tesco having difficulties, but we can now see that Tesco (LSE: TSCO), Sainsbury (LSE: SBRY), Morrisons (LSE: MRW), Asda and even Waitrose have all been suffering. This thing is happening across the board.

Until now I have thought of the supermarkets as contrarian plays and turnaround prospects; my view was that their difficulties were just bumps in the road. But these results have made me think that there is something more fundamental at work here. Some investment experts have started to talk about the supermarkets as value traps. This sounds very harsh. But is there the possibility these experts may be right?

I am certainly holding off from investing in this sector, no matter how low share prices have already fallen. The balance between supply and demand has been lost. The supermarkets need to shift their focus from volume to profitability. In the past, increasing volume meant increasing profits. In the future, it will mean decreasing profits.

As the economy improves, retail receipts will start to rise. This gives the supermarkets hope, but the road to recovery will be long. I think it is still much too early to invest.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

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.

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

More on Investing Articles

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »