supermarkets subdued

srcandas

Over recent months, I guess in part triggered by 'Tesco Christmas screw up', there have been many comments on Tesco, Sainsbury and Morrison.

But the shares look a bit under the weather for all three.

My research led me to believe they might make sensible holdings in troubled Euro times. After all we all have to eat, there could be good cheap import opportunities, and balance sheets look ok with reg divi's.

Any thoughts on why they seem cheap to me before I blow the step daughters inheritance? :beer:

oldtoolie

Many investors think the supermarkets are a good share to hold. But you wouldn't want to put the whole inheritance in one sector.

Have the supermarkets overbuilt and overexpanded? Will profits be hit by consumers cutting back and price wars?

srcandas

oldtoolie wrote: »

Many investors think the supermarkets are a good share to hold.

But those putting their money where their mouths are must be few and far between judging by the prices

oldtoolie wrote: »

Have the supermarkets overbuilt and overexpanded? Will profits be hit by consumers cutting back and price wars?

I think the strength of the big 3 (ignoring ASDA) is that they can pitch at the cheap, middle and to some degree even the top end markets. I remember in the 80s when Distillers lost the Japanese whiskey market as they had no cheap brands there. When the crash came the Japanese carried on drinking whiskey but not single malts :cool:

But I think the sups seem to have this covered.

Yes they may hold too many big stores and not enough locals but they even seem to be addressing that area.

But I still can't put my finger on the lower than I expect price. But then I have no idea why in the last two days people are bundling into the banks. I reckon monday they may be going the other way but we will see :beer:

Glen_Clark

srcandas wrote: »

But then I have no idea why in the last two days people are bundling into the banks.

Another round of money printing on the way to subsidise the banks some more. The money clearly isn't getting towhere its needed, but sure greases a lot of banker's palms along the way.
Osborne wants to make more mortgages available to keep house prices up, which will mean the bank borrowers are unlikely to go into negative equity.

Glen_Clark

srcandas wrote: »

But I still can't put my finger on the lower than I expect (supermarket share) price.

Its high volume low margin business. If too many customers move from 'finest' range to 'value' range it could wipe out most of the profits.

srcandas

Glen_Clark wrote: »

Its high volume low margin business. If too many customers move from 'finest' range to 'value' range it could wipe out most of the profits.

Glen good point. Perhaps I'll just ride out Tesco with what I have. The div is ok and I have no other retail.

But I do feel with the product range (from banks to booze, from flowers to funerals) and their buying power there should be good profits and growth.

Well I'm glad I didn't get tempted today. Just sat and watched Lamprell doing a bounce now the new chairman is in place. For sure Monday should be interesting. Now for more important things but still sort of Euro connected.

"It's coming home, it's coming home, foot...." sssshhhhhh :beer:

gadgetmind

srcandas wrote: »

Any thoughts on why they seem cheap to me before I blow the step daughters inheritance?

A rule of thumb is "no more than 10% in any one sector" and it's well worth at least trying to stick to it.

Few supermarkets have any growth potential left (most have made a mess of expansion outside the UK) so buy based on dividend yield and cover. My wife has held Sainsburys for a wee while, and I'm happy to keep holding. No others have tempted me over recent times nor now.

MKS are on my watch list, and we also hold BWNG, but I don't count these as being the same sector even though they are retail.

oldvicar

If you are intereted in investing in supermarkets then I would suggest visiting 3 or 4 stores of each of the chains you might invest in, as well as competitors such as Asda and Waitrose. You will be surprised at the real feeling you will gain for how well they are doing compared to their competitors. I genuinely believe that you can pick up the trends 12 to 24 months before they show up in financial reports and commentaries.

gadgetmind

oldvicar wrote: »

If you are intereted in investing in supermarkets then I would suggest visiting 3 or 4 stores of each of the chains you might invest in

My wife used such an approach, and decided that Sainburys was a better investment than Tescos. I showed her the historical data, and explained why she was wrong, but she stuck to her guns.

Unlike most of our conversations on financial matters, she does NOT seem to have forgotten about this one. Ah well.

BTW, here is your typical value investor's approach.

http://www.ukvalueinvestor.com/2012/06/is-sainsbury-the-new-supermarket-superpower.html/

The unwritten subtext of his summary is that they are a reasonable income play.

opinions4u

Worldwide growth is restricted at the moment and looks likely to be for some time to come.

The supermarkets boomed by expanding their product range, growing overseas and moving in to the corner shop space.

We now have less money in our pockets to spend on their expanded product range. Tesco's best hope of sales growth is in the far east, but that's a modest part of their overall business.

It's a few years since I closely researched supermarkets but pricing elasticity was quite key to the sector. Cut your prices by 5% and your profits are wiped out if your competitors follow.

They are genuinely efficient operations, but there is probably a little bit of over capacity at present. I don't think I'd be piling in to get a bit of the action.

srcandas

The morningstar made a little comment that although on the surface the recent trading reports showed Tesco trading down a little bit and Sainsbury's up a little the figures were not comparable as one for example did not include the jubilee weekend, the other did. (if only life was simple ).

I might hedge with a few Sainsbury in the bean bag as a long hold divi player.

All this comment about too much in one sector is way out of order. Obviously the best strategy is 99% in one sector. 1% for gun and one round of ammunition.

If it goes sour then 'bang' and a million years of blissful sleep. If it goes well 10 years of wine, woman and song, followed by 999,990 years of blissful sleep

:beer:

Bring on the rooney :cool: