Tesco: If Buffett's In, So Am I

LONDON -- We're all familiar with the alleged decline of Tesco  (LSE: TSCO  ) (NASDAQOTH: TSCDY  ) as a destination for shoppers. 

Indeed, the Kantar index has continually highlighted a decline in U.K. market share for the company, with rivals such as J. Sainsbury picking up the slack with its slick marketing campaigns and value-for-money offering.

Furthermore, the situation outside of the U.K. does not appear to be any better. The U.S. operation, Fresh & Easy, will be sold due to continuing losses, while restricted trading laws are not aiding the company's performance in South Korea.

If the above isn't bad enough, add horsemeat to the mix (a handful of Tesco products were found to contain more than 1% horsemeat) and the situation appears to be rather challenging for Tesco boss Philip Clarke.

However, none of the above puts me off investing in the company. In fact, I think now is the perfect time to be buying the shares as the most successful investor in the world, Warren Buffett, continues to hold around 5% of Tesco. If it's good enough for Warren, it's good enough for me.

Of course, I'm not solely relying on the fact that Berkshire Hathaway is a major shareholder to convince me that now is an opportune moment to buy shares in the supermarket. Tesco currently trades on a P/E of just 9, which compares extremely well to the consumer services sector on a multiple of 15. Meanwhile, Tesco also seems cheap when compared to the FTSE 100, which has a P/E ratio of 12.

In addition, Tesco shares yield an impressive 4.5%, which is an appealing number at a time of historically low interest rates. 

Of course, it is not all sunshine and rainbows. With earnings forecast to experience no growth over the next couple of years, shareholders such as me will need to hope for a rerating of the stock to deliver capital gains.

Although I feel company management seems to have taken its eye off the ball, I still believe the supermarket makes for an appealing investment. Warren's seal of approval gives me a dollop of confidence, while the decent yield and lowly P/E act as convincers should I still need a shove to hit the buy button.

Let me finish by adding that if you already hold Tesco shares and are now looking for an alternative growth opportunity in the FTSE 350, this exclusive report reviews The Motley Fool's top growth share for 2013.

Simply click here for the report -- it's completely free!

link


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2013, at 3:40 PM, vireoman wrote:

    Also note that the UK won't apply any withholding tax when your Tesco dividend is paid.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2512018, ~/Articles/ArticleHandler.aspx, 10/31/2014 2:49:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement