MIDAS SHARE TIPS: Check out Tesco and Sainsbury’s shares

Everyone is concerned with the cost of living, not surprising since almost everything costs more than it did a year ago. Inflation is close to 11 percent, while food prices are 13 percent higher than last winter.

Just putting food on the table is significantly more expensive than it used to be, so much so that many experts feared Christmas would become a nightmare for mainstream food retailers. The numbers tell a completely different story. Supermarket giants tesco and Sainsbury’s last week announced robust trading during the festive season, as shoppers dug into their wallets to celebrate with turkey and mince pies, fancy puds and top treats like Belgian chocolate Yule logs and mulled wine cider glazed gammon.

Tesco’s like-for-like sales were almost 8 percent higher in the seven weeks to January 7 and the group remains by far the largest grocer, accounting for more than 27 percent of the market. Chief executive Ken Murphy admits times are tough and likely to remain so, but he believes Tesco will stay in the polls and sticks to earlier earnings estimates.

Sainsbury’s posted overall sales growth of 7.1 per cent over the Christmas period, taking over market share from rivals and now accounting for nearly 16 per cent of the grocery market. CEO Simon Roberts is expressing confidence in his company and says earnings for the year to March will be above expectations.

How should existing shareholders and potential investors interpret all this information? No one can deny that consumers are under pressure, but supermarkets seem relatively resilient and, at least over the Christmas period, customers were happy to stock up on premium ranges.

Still, the forecasts of brokers do not inspire confidence. Tesco’s profit is expected to fall 8 percent to just over £2 billion in the year to February and fall further over the next 12 months. A dividend of 11 pence has been forecast for this year, to be maintained next year and beyond.

Sainsbury’s is forecasting a 6.5 per cent drop in profits, to £685m for the current year, sliding to £645m in 2024. A dividend of 13.4p is expected for this year, falling to 11p next year, 5 pence and will remain below 12 pence in 2025.

These figures suggest that City analysts expect UK consumers to tighten their belts over the next two years, struggling to cope and cutting costs where they can.

Let’s hope these gloomy predictions are wrong. Last Friday, better-than-expected economic data suggested the UK could be stronger than Jeremiah’s fears. There are also spots of optimism across the country. Entrepreneurs admit that conditions are far from easy, but many are still making progress and hoping for economic recovery as the year progresses.

Tesco and Sainsbury’s should be in an even stronger position than smaller companies, using their size to weather the economic storm. And while discount chains Aldi and Lidl are doing their best to gain market share, both account for less than 8 percent of national grocery spending and are much less profitable than their British counterparts.

Tesco and Sainsbury’s have also stepped up their game in recent years. Determined to prove it can deliver value to customers, Tesco uses the Clubcard loyalty program to give customers more of what they want.

Sainsbury’s is aiming to prove its value credentials too, while maintaining a slightly more affluent image than its bigger rival. The group also benefits from the ownership of Argos, which lately supplies the goods.

So, are these stocks worth buying? In 2007, Tesco traded for £4.78. Today, the share is £2.46, after falling about 15 per cent in the last year alone.

Sainsbury’s shares have suffered a similar fate. Before the financial crisis they were over £5.50. Today they are £2.41, up from £2.90 a year ago.

Both stocks have suffered from increased competition, tough economic conditions and changes in shopping habits, forcing them to take a long, hard look at the stores they own and the type of company they want to be in the future.

There is still work to be done, but much of the hard graft has been completed. At current levels, both stocks offer decent earnings, with Tesco returning 4.4 percent and Sainsbury’s returning 5.5 percent.

Midas verdict: Tomorrow is Blue Monday, said to be the most depressing day of the year, with credit card and tax bills to pay, biting weather conditions and the warm glow of Christmas a distant memory. Whatever happens, everyone needs to eat – and more than 40 percent of the country buys its food from Tesco and Sainsbury’s.

Admittedly, the stock has performed poorly in recent years. But the companies have worked hard to position themselves for a brighter future.

With Tesco at £2.46 and Sainsbury’s at £2.41, both stocks should generate attractive long-term rewards, while dividends add spice.

Traded on: Main market Tickers: TSCO & SBRY Contact: tescoplc.com or 0371 384 2977 and sainsburys.co.uk or 0333 207 6557

… and M&S could pay dividends

Remember when Marks & Spencer couldn’t do anything wrong? When profits seemed to grow almost effortlessly from year to year and the company was synonymous with success.

Those days seem far away. Shares have been twirling over the last three decades and at £1.46 they are now worth less than they were in the early 1990s.

The company has been trying to regain its halo for years, spurred on by millions of shoppers, especially those of a certain age, who remember M&S in its heyday. But there have been successive mishaps — underinvestment in online shopping, tired-looking stores, and shoddy clothing that didn’t appeal to the modern consumer.

The group has hired many a retail guru to try and move the business into modern times. Last week, CEO Stuart Machin boldly suggested that these efforts are paying off.

Like-for-like sales rose 7.2 percent in the three months to December 31, with apparel and home revenues up nearly 9 percent and market share growing to more than 10 percent — a seven-year record.

The beloved food division achieved 6.3 percent growth, but also gained market share, with shoppers particularly enthusiastic about both the Remarksable bargains and the luxury Collection range. Machin, a career retailer who became CEO last May, is clearly pleased with the numbers.

Recognizing that economic headwinds and cost pressures cannot be ignored, he seems confident that M&S ​​can move forward by upping its apparel game, upgrading stores, improving its online efforts and cutting costs.

For long-suffering shareholders, the recovery can’t come soon enough. Not only has the stock underperformed for years, but the group also paid its last dividend in January 2020.

There are indications that this could change when M&S reports annual results in May.

The company has cut debt significantly while sales and profits are well above previous lows.

City analysts are now hoping for a dividend of around 4.75 pence this year, rising to 5.2 pence in 2024.

Midas verdict: Shares of Marks & Spencer have consistently disappointed, but there has been a shift in sentiment in recent months, with the share rising from 93 pence to £1.46 since October. If Machin continues to make progress, the price should continue to climb from here, while the prospect of dividend payments could further boost the stock. Existing shareholders must remain with the company. Brave investors may even choose to dip their toes in at current levels.

Traded on: Main market Ticker: MKS Contact: corporate.marksandspencer.com or 020 7935 4422