Sainsbury tipped as a ‘buy’ for contrarian investors

7th April 2014

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Brokers are coming out in support of Sainsbury despite the supermarket giant enduring a torrid period during which it has witnessed its shares plummet by 17% over the past thee months alone writes Philip Scott.

On the back of tougher trading conditions, with heavy discounters such as Aldi and Lidl continuing to gain traction, last month saw the retailer report its first drop in sales for almost a decade.

Total sales for the fourth quarter fell 1.5% while like-for-like sales dropped 3.8%.

In a statement issued with the results, chief executive Justin King, said the market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers.

He added: “We have seen a decline in sales in the quarter reflecting tough comparatives. This time last year our sales benefited significantly from the discovery of horsemeat in some branded and competitor’s products.”

The business did however report that it had maintained its 17% market share.

But despite the turmoil, analysts at investment bank Goldman Sachs have reiterated a ‘strong buy’ recommendation on the firm, while Sheridan Admans, investment research manager at The Share Centre, says that given the recent sell off in the sector and the backdrop of an improving economy, he has promoted the firm to his ‘buy’ list.

He says: “Sainsbury’s did warn in its third quarter results that that the fourth quarter would be challenging, as it expected consumers to spend more cautiously in an attempt to improve the family finances after the Christmas splurge and discounters like Aldi likely to benefit.

“The business has a strong management track record, market share growth has been impressive and the dividend is well covered at present. We recommend investors considering the stock should drip feed while the short-term headwinds die-out.”

1 thought on “Sainsbury tipped as a ‘buy’ for contrarian investors”

  1. Noo 2 Economics says:

    I do get tired of hearing about “heavy discounters” there is no “heavy discounting” going on with Aldi as their prices are roughly commensurate with other local independent shops in my area.

    The scary thing is the immense prices charged by the oligopolist supermarkets such as Sainsbury’s, Morrissons and Tesco. I now wonder if in fact the so called “heavy discounters” are what would have been called “discounters” a few years ago (which is what the likes of Morrisons would have been until the last 3 years) whilst now, the big supermarkets are ignoring resale price maintenance and simply charging above the recommended resale price!

    The news is if you want extra profit drop prices and go for volume – except this shouldn’t be “news” to a supermarket!

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