Will Cranswick plc And Greggs plc Beat Tesco PLC This Year?

Should you avoid Tesco PLC (LON: TSCO) and pile into Cranswick plc (LON: CWK) and Greggs plc (LON: GRG) instead?

| 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.

Shares in food producer Cranswick (LSE: CWK) have risen by 5% today after it announced the acquisition of CCL Holdings and its wholly owned subsidiary Crown Chicken for £40m.

Crown is an integrated poultry producer in East Anglia and it breeds, rears and processes fresh chicken for supply into a broad customer base across grocery, retail, food service, wholesale and manufacturing channels. Furthermore, Crown has a well invested and efficient milling operation that satisfies all of its own feed requirements.

Cranswick expects the acquisition to be modestly earnings enhancing in the current year and the deal builds on its successful acquisition of Benson Pork in October 2014. As such, it seems to be a positive step for the company that has been well-received by the market.

With Cranswick offering a highly defensive earnings profile, it appears to have considerable appeal given the uncertainty in the wider market at the present time. However, with its shares trading on a price-to-earnings (P/E) ratio of 20.7 and being expected to record earnings growth of just 5% this year and 6% next year, Cranswick appears to be fully valued.

Investor sentiment under pressure

It’s a similar story for fellow food-focused company Greggs (LSE: GRG). The high street baker is part way through a highly successful turnaround project, with it recovering well from a difficult period a number of years ago. However, with Greggs’ shares now trading on a P/E ratio of 18.3 and being forecast to post a fall in net profit of 5% this year, investor sentiment could come under a degree of pressure.

Certainly, there’s scope for Greggs to expand its product range yet further and to continue its programme of closing unprofitable stores in favour of new openings. And while good value and convenient food locations are a staple that should experience a relatively stable level of demand, Greggs is priced as a growth stock when its forecasts appear to be below those of even the wider market. Therefore, its shares could continue to fall following their 18% decline since the turn of the year.

Worth buying

Meanwhile, Tesco (LSE: TSCO) appears to be well-worth buying at the present time. Unlike Greggs and Cranswick, Tesco is expected to report rapidly rising earnings over the next couple of years, with its bottom line due to increase by 81% in the current financial year and by a further 32% in the next. And despite Tesco trading on a P/E ratio of 22.4, such a strong growth rate equates to a price-to-earnings-growth (PEG) ratio of only 0.7, which indicates that it offers growth at a very reasonable price.

Clearly, Tesco lacks the stability of Cranswick, but its valuation points to a much wider margin of safety than is the case for either of its food-focused peers. Furthermore, with Tesco’s turnaround plan still being in its relatively early stages, its profitability could continue to improve over a sustained period. This means that its shares look set to outperform Greggs and Cranswick and continue their 29% rise since the start of the year.

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.

Peter Stephens owns shares of Tesco. 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.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »