With the world once again going into various forms of lockdown to suppress the new coronavirus variant, the outlook for the global economy is becoming increasingly uncertain. Against this backdrop, there is one company that I want to own more than any other in 2022.
A defensive investment
In my view, Tesco (LSE: TSCO) shares are one of the most defensive investments on the market. Over the past two years, the company has been able to play to its strengths during the pandemic. As its stores were categorised as essential retailers during lockdowns, they were allowed to stay open while the rest of the ‘non-essential’ economy was shut down.
Thanks to this tailwind, group sales and profits held up relatively well in 2020 and 2021. And as the world has reopened, Tesco has been able to leverage its size in the UK retail market to get around some of the supply chain issues that have damaged other retailers.
The company was already running trains from Southern Europe before the supply chain crisis, but it has increased its weekly rail shipments to get around bottlenecks at ports.
The group’s extensive distribution infrastructure in the UK has also helped it navigate supply chain issues. Thanks to these competitive advantages, the overall impact on the underlying business has been relatively minimal.
Still, past performance should never be used to guide future potential. Tesco has been able to navigate the challenges of the past two years, but what does the future hold for the enterprise?
Tesco shares: primed for growth
I think the company is primed for growth in 2022 for several reasons. First of all, it does not look as if the supply chain crunch will ease anytime soon. Therefore, Tesco should be able to continue to use its competitive advantages to navigate these issues as competitors struggle.
However, this does not guarantee the business will avoid all of the issues around the supply chain crisis. It has already had to hike wages for drivers and warehouse workers, which will undoubtedly have an impact on profit margins.
Secondly, in periods of high inflation, consumers tend to be more careful when shopping for goods. Consumers tend to become more cost-conscious and trade down to own branded items.
With its diverse portfolio of own-brand items and low prices, Tesco may benefit from this trend. Granted, the company will have to fight against lower-cost competitors such as Aldi and Lidl. Fighting off competition from these retailers is probably the biggest challenge the group faces today.
However, it does have some advantages that could work in its favour. These include a broader range of products, its Aldi price-match scheme, and the Tesco Clubcard Prices scheme.
The latter scheme can dramatically reduce the cost of shopping for Clubcard holders. It also generates valuable data for the company. Tesco can then use this to push new offers on Clubcard users.
All in all, while the retailer does have its challenges, considering the advantages laid out above, I would buy Tesco shares for my portfolio today as an investment for 2022.
