Both Tesco (TSCO.L) and J Sainsbury (SBRY.L) made their marks in the grocery business but have expanded into the broader retail space, including books, clothing, electronics, furniture, toys, and gasoline, in addition to financial services and internet services. The result has been two companies vying for market share in the same space, and consequently, two stocks vying for your attention if you want to invest in this space.
Let’s look at the two choices for your investment dollars by comparing actual company and stock performance. All figures are current as of August 10, 2017 unless otherwise indicated.
Tesco has a higher market cap, at $14.64 billion, versus Sainsbury’s at $5.52 billion. Tesco is a stock priced just over $180 while Sainsbury stock is over $250 per share. The stock price by itself does not indicate whether these stocks are good investments.
Tesco has greater profits, at $2.3 billion, as opposed to $1.6 billion for Sainsbury. The tale, however, is in the momentum. Year over year (2017 compared to 2016) Tesco increased its income from $8 million to $1.1 billion (as of 2/25/17), while Sainsbury saw operating income drop from $5.9 million to $4.5 million (as of 3/11/17). Tesco has upward momentum in its operating income, while Sainsbury has faltered.
Looking at stock performance over the period of one year, we can see that Tesco has been in a steady decline since December 2016. The price has dropped from approximately $220 per share to about $180. Sainsbury rose during the same period to $260 but dropped in June 2017 to $252.
Other action tells us even more. Tesco has been moving steadily down in a price channel, and there is no indication of a bottom yet. This means the trend may continue until a disrupting event, such as good news from the company or major purchases of the stock from institutional investors. The recent uptick has occurred on low volume, and so is unconvincing.
Sainsbury saw a sharp drop since June 2017, and down volume has been stronger than up volume. Sellers have been winning the battle. The stock may have found support around $243 per share, because it has gone back up slightly. However, Sainsbury’s uptick occurred on low volume and so is as suspect as Tesco’s recent rise.
Trading the Trend
There is a saying in investing that goes, “The trend is your friend.” What we see when comparing these two stocks is a steady downtrend for Tesco and a broken uptrend for Sainsbury. While neither stock is attractive right now, surprisingly enough, Tesco has more going for it, despite its long downtrend. (See also: How Many Companies Does Tesco Own?)
A wise investor could put Tesco on a watch list and wait for the downtrend to be broken. Keep in mind that the company is showing increased income. At some point, buyers could see this stock as a bargain. That time is not now, but if the stock forms a base then breaks out on high volume, watchful investors could ride a new uptrend. To be sure, this would have to be supported by continued good news from the company.
Sainsbury has no current trend. The sudden drop out of an uptrend has left the stock bouncing around on low volume, meaning investors haven’t made up their minds. Putting this stock on a watch list would mean looking for a new trend to form. It is not clear what that trend will be. The battle between buyers and sellers makes this stock potentially volatile.
The Bottom Line
In investing, patience is only a virtue if you have a plan. These two stocks are not screaming to be bought right now, so the sensible thing to do would be to watch them and jump on any new uptrend. Volume will be important. Two or three days of significant buying on heavy volume could signal a new pattern.
Both stocks no doubt have stockholders waiting for the stock to rise again so they can sell and get their money back. Any new uptrend could encounter some temporary selling because of that. Investors would need to watch for buyers to snap up shares during any selloff. Again, high volume would be the indicator that buyers are winning.
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