Should I snap up surging Sainsbury’s shares?

Sainsbury’s shares have been surging in recent months and the firm just announced it has increased its market share. Time for me to buy?

| 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.

Young happy white woman loading groceries into the back of her car

Image source: Getty Images

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.

Sainsbury’s (LSE: SBRY) shares are back. Or, at least, they’ve had a rather good few months. This was capped off by the supermarket reporting a surprise increase in market share for the 12 weeks to 24 December 2023.

A growing slice of the pie is some feat. The rise of budget rivals like Aldi and Lidl led to many questioning the future of the UK’s second-biggest supermarket chain. So this reversal in fortunes has made the stock look enticing.

Investors seem to think so. They’ve been piling in over recent months. The shares surged 25.3% since last October although weak clothes sales did cause a 5% drop after Thursday’s trading update. 

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

Created with Highcharts 11.4.3J Sainsbury Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I don’t own Sainsbury’s stock, but I’m wondering whether to get in on the action here. The shop ticks many boxes for me. Retail is a highly defensive sector, which bodes well long term. Throw in a solid dividend and modest debt levels and the stock looks attractive. 

However, the threat of budget competitors has stopped me picking up shares in the past. That’s why this recent news has intrigued me. If Sainsbury’s can hold its own in the ‘Aldi Lidl era’ then perhaps I need to revisit my decision. 

Before I get carried away, I’ll point out that this bump in market share was only over three months. While it could be a sign of things to come, it’s a small shift over a short period. 

Rivals

Equally, much of the gap seems to be due to the weakness of two of its competitors, Asda and Morrisons. Both supermarkets are highly leveraged and have struggled to invest with interest rates as high as they are.

As for the other shops, Tesco lost ground and Lidl was the biggest winner. While Aldi increased market share, it was by a smaller amount than Sainsbury’s. That’s a feather in the cap, if you ask me.

Stealing the lunch of Aldi and Tesco is some pat on the back for CEO Simon Roberts. He joined in 2020 with a clear focus on the food side of the business – a strategy that seems to be paying off.

He plans to announce an updated strategy next month, “building on all we’ve done to put food back at the heart of Sainsbury’s over the last three years.”

My move

The momentum looks strong here, but the stock is not an obvious buy. For one, share price appreciation has been thin on the ground for decades. I could have bought Sainsbury’s shares in 1991 for more than they are worth now. 

In this case, perhaps I’d look at the dividend as a reason to purchase the shares. Well, a 4.57% forward yield would have looked attractive only three years ago. Now, I have to compare it to a guaranteed 5% in savings accounts.  

All in all, there’s plenty to be positive about here but I’m not seeing the obvious value I’d need to open a position. The stock will remain on my watchlist for the time being.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

John Fieldsend has positions in Tesco Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we 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

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

This FTSE 100 stock is down 25% from its 52-week high. Should I buy?

Analysts think the price-to-earnings ratio of this FTSE 100 stock could fall by half in the next two years if…

Read more »

Investing Articles

£10,000 invested in Nvidia stock just two weeks ago is already worth…

Nvidia stock's been making big losses and big gains so far in 2025, at least on paper. But long-term valuation…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Here’s why Lloyds shares have dipped sharply

Lloyds shares got a boost recently when the Treasury petitoned the Supreme Court to go easy on the car loan…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

A £10,000 investment in BAE Systems shares 5 years ago is now worth…

BAE Systems' shares have lifted off since the start of the decade. But can the FTSE 100 defence giant continue…

Read more »

Dividend Shares

£8,000 invested in high-yield dividend stocks could make this amount of passive income

Jon Smith explains how dividend shares with yields in excess of 8% can be used carefully in order to build…

Read more »

Investing Articles

£5,000 invested in Tesco shares 2 years ago is now worth…

Over the last two years, Tesco shares have provided investors with gains of around 30% per year when dividends are…

Read more »

Investing Articles

Closing in on £6.50, Rolls-Royce’s share price still looks cheap to me anywhere under £9.32

Rolls-Royce’s share price has gained a lot of ground in the past year or so, but with strong growth and…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Value Shares

The best performing stock in the FTSE 100 over the last 5 years is…

This under-the-radar FTSE stock has surged over the last five years, outperforming the majority of shares in the large-cap index…

Read more »