The Right Time to Buy Sainsbury’s Shares?

I am a fan of Sainsbury’s. I like their food and I like their prices. I also like my local store, because they have a convenient underground car park and they even have electric car charging ports outside. These are not the main reasons why I own some of their shares, but they are certainly contributing factors. As a former (very brief) employee, I know what they’re like on the inside (I loved working there), and I was very sorry to have to leave the company due to moving abroad.
Sainsbury’s shares took a fair dip on Friday, but what was the cause of this sudden drop? Well, it is not really anything that Sainsbury’s have done, but what has happened in the grocery retail sector recently:
  • Tesco issued a profit warning
  • Tesco cut their interim dividend by 75%
  • Discount retailers Aldi and Lidl have grabbed a lot more market share
But wait, that’s facts about other companies. What has this got to do with Sainsbury’s? Well, Tesco are by far the largest grocery retailer in the UK. At their height, more than 15% of all money spent in the UK went through their stores. Crazy! Such a large retailer obviously had a lot of stores and major control of the market. However, I sold my shares in Tesco a while back and I eventually bought into Sainsbury’s instead. Tesco have whopping debt levels. They basically took on too much too soon. Their American adventure ‘Fresh n Easy’ was a disaster. They also had a bit of a disaster in their Chinese venture. When such a large company starts to suffer problems, it can have the effect of ‘drag’, pushing down the prices of other companies in the same sector – even though they may not be suffering any problems at all.
This is basically what happened on Friday 29th August. Tesco was down 6% because of the profit warning and dividend cut. Tesco went into drag mode. People got scared and started selling these similar companies:
  • Sainsbury’s
  • Wm. Morrison
  • Marks and Spencers (sell some grocery)
  • Next (they don’t even sell grocery?!)
Anyway, just take a look at Sainsbury’s fundamentals. They are close to 6% yield, P/E now at 7.7, and 37.7 EPS.
I think the main problem that the major supermarkets face is the threat of discounters Aldi and Lidls acquiring more market share. So yes, this aspect can affect all the main players. However, Sainsbury’s are partnering with Netto, the Danish discounter, which used to be around in the UK years ago. This may help prevent Sainsbury’s losing market share to the Germans. Sainsbury’s own brand also has a better reputation than Tesco – remember the horsemeat scandal? Did you see anyone shopping for beef in Tesco then? No. But I still saw people shopping for beef in Sainsbury’s…
The other thing is that both Tesco and Sainsbury’s have their CEO’s changing. Tesco’s perhaps needed to take the fall for the misadventures overseas, but Justin King of Sainsbury’s never had such problems. I await the new CEO’s moves with anticipation…
I’m planning to buy more Sainsbury’s shares in October, before the next ex-div date.


  1. Thanks for sharing your analysis of Sainsbury’s. This is the first time I have ever heard of this company. One of the benefits of our online community. You get introduced to new companies and investment ideas all the time. Curious to know if your’ll be picking some up.

    1. Yes, I am forever intrigued as to companies I’ve not heard of either, although it doesn’t happen that often from across the pond, as we are generally very familiar with the American markets. Still, even the companies I do know about often throw up surprises like Aflac… I didn’t know they were big in Japan.

      I’m buying some more Sainsbury’s shares in October, but for this month, I’ll be buying BAE Systems. I am just trying to get one share each month, and I try to time it so I buy at least a month before it goes ex-div, although sometimes that doesn’t always work. Basically I just want my dividends!

  2. The ‘drag’ thing is one of the weirdest quirks about the stock market… Why would you sell a well-run business because a competitor issued an earnings warning or something? Isn’t that a good thing if your competitor isn’t doing too great? People are weird sometimes.

  3. I made the mistake of shopping mainly at M&S Foods while living in London – spent a bit too much money on groceries. But, if I could buy shares in M&S at an attractive price relative to P/E, P/B, Div %, etc, I’d really look into it.

    I remember enjoying Sainsburys. If they seem as attractive as you point out, it looks like a buying opportunity for long term holdings!

    1. Omg, marks and Spencer’s is pricey! But so good… Their shares have always been popular, as their seen as that kind of stalwart of the retail industry, but they have not been amazing at innovating that well. I think the food retail is pretty key for them, as you often see leased M & S small for stores at service strains and railway stations. Captive market!

      I’m going to pick up more Sainsbury’s shares in October, because I’m buying something else this month. I hope that the price of Sainsbury’s will stay low in the meantime, or at least be cheap when it comes to October buying time!

    2. Yes M&S Foods was expensive on my student budget! I honestly don’t know why I shopped there for food – I should have shopped at Lidl or Asda waaaaaay more often.

      I agree with your prognosis that M&S is a good stewart but seemed like a bit of a lumbering giant. Little need for innovation when one is so big and fairly well fed. I’d probably be hesitant of M&S stock unless it was on the cheap.

      What’re you buying this month? I’d be interested to see! A future post perhaps???

    3. Well, I certainly won’t be buying M & S, although I coincidentally did buy something from there last Thursday! I also went to Next, which I briefly mentioned above.

      I will be buying BAE Systems, but my post about them will go up on 18th Sept.

      Catch you later, I am off to Aldi and Sainsbury’s!!! (I literally am going right now)

  4. Yes, asda are quite established, more in the north I believe, as I think that’s where they started out. I’m not a huge fan of them because their own brand isn’t great quality, although they do some decent clothes. But I judge these places on food first, extras second.

    Still, asda are cheap, so people like to shop there. When I lived in Cambridge, asda was quite convenient to get to by bike. As a student, I loved their pasta and noodles aisle, because they had more varieties than anywhere else.

    They generally cater for the lower end of the market, I don’t think they have any mid to upper range coverage, at least it is not obvious. That’s one reason why I feel Sainsbury’s is a better bet, because they do a good range of stuff and with their link to netto, they could secure themselves as far stronger than Tesco in the coming years

    Thanks for stopping by again Henry, I hope you’re having a nice day off. We had our equivalent of labor day last week (ha, I had to manually correct that spelling to chop out the u!)

  5. Sainsbury looks like a very interesting company. I love retailing. And it seems like Sainbury also has a banking division too. They’re not based in the United States so I never heard of them until now. What do you think about Walmart’s Asda? They seem to be pretty established in Britain.

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