Why I would avoid this FTSE 100 stalwart

Jabran Khan looks into recent news about a well-known supermarket brand.

| 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.

J Sainsbury (LSE:SBRY) is currently the third-largest supermarket in the UK and therefore occupies the lower middle position in the Premier League of UK supermarkets. 

Inception to current affairs

Founded in 1869 by John James Sainsbury, the company was the largest retailer of groceries by 1922. Currently, the company is split into three main divisions: Sainsburys Supermarkets Ltd, Sainsburys Bank, and Sainsburys Argos.

The acquisition of Home Retail Group, the parent company of Argos and Habitat, in 2016 for £1.4bn was seen as a major coup. But in April 2019, the Competitions and Markets Authority (CMA) blocked a merger between Sainsburys and Asda, citing the risk of price increases for consumers. 

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

The recent announcement that chief executive Mike Coupe will be stepping down after six years was met with mixed reactions. 

Maureen Hinton, retail research director at Global Data, doesn’t consider Coupe’s decision to stand down to be a shock. “After the Asda deal didn’t go through it needed a period of stability to get the company back on track. So it probably needs someone else to take over. You need a fresh eye. It’s very tough in retail generally, but there’s a big argument for saturation in the grocery sector.”

Performance and competition

If you look at the most recent, post-Christmas, trading update the supermarket’s like-for-like sales fell 0.7% in the 15 weeks to 4 January. While grocery sales actually increased by 0.4%, poor sales in the division that includes Argos weighed on the company’s overall performance. Clothing sales, however, grew by 5%, which Coupe said was helped by colder weather in the weeks before Christmas.

These results show a mixed picture for the retailer,” said Richard Lim, who runs analyst firm Retail Economics. “On the one hand, the food business held up relatively well in an extremely tough market,” he said. “On the other, Argos appears to have had a much tougher time, delivering an uncomfortable decline in sales over the festive period.”

What should I do now?

Looking at the bigger picture with respect to share price and general performance, the firm’s profit levels have been decreasing year on year for the past three years. As has the dividend per share. 

The supermarket wars will continue with each of the big four trying to get to the top. New cheaper competitors are opening up, like Aldi and Lidl, offering consumers an alternative. The recent news that the big four have all lost small amounts of market share will add to worries about these new additions to the UK market. As a silver lining, in a recent survey conducted by Which?, Sainsburys was voted the cheapest supermarket. 

However, I would steer clear of Sainsburys at the moment. A new chapter in its rich history is afoot, given there will be a new chief executive to stamp their mark as well as the long-term evolution towards online shopping.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy 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.

Jabran Khan has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

As Lloyds launches a £1.7bn buyback, is the share price too cheap to ignore?

Car loan mis-selling and a full-year profit miss combine to push the Lloyds share price up after FY results. It…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Here’s how investors could target £4,973 in passive income from a £10,000 holding in this FTSE 250 media gem

This FTSE 250 firm generates a very good yield that I think might deliver exceptional returns over time. And it…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 21% from May despite excellent Q4 2024 results, is GSK’s share price an irresistible bargain to me now?

GSK’s share price has fallen a long way on a combination of factors, but do its recent strong results leave…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Which would I buy today, the FTSE 100 or the S&P 500?

The UK's FTSE 100 and US S&P 500 indexes are both trading near record highs. But US stocks look expensive…

Read more »

Investing Articles

I’m in 2 minds about the Vodafone share price. What should I do?

With the Vodafone share price seemingly stuck in a never-ending loop of doom, our writer’s thinking about selling up. But…

Read more »

Investing Articles

£10,000 invested in Greggs shares 10 years ago is now worth…

Greggs shares have performed well over the long run, but recently performance isn’t impressive. Dr James Fox explores the waning…

Read more »

Investing Articles

With a 9.5% yield, could this FTSE 250 share be a dividend gold mine?

Christopher Ruane is eyeing a FTSE 250 with a dividend yield approaching double digits. Here's what he likes about it…

Read more »

Investing Articles

2 key reasons Nvidia stock could still soar from here

Even after the chipmaker's stunning performance in recent years, this writer sees reasons that could potentially help propel its share…

Read more »