Investment View: Sainsbury's is the place to shop for a decent return

Sainsbury's. Our view: Buy. Price: 331.8P (-1.8p)

Morrisons. Our view: Sell Price: 260.8P (-0.9p)

As I suggested earlier last week, if there is one part of planet retail you'd want to be on over Christmas it's the supermarkets.

They sell an awful lot more than food at the sort of prices you can only match if you're another supermarket or a serial tax avoider like Amazon.

With money tight, that's the sort of thing that consumers are bound to notice, and it ought to feed through to their sales figures, their earnings, and ultimately their share prices.

But out of the big three UK-listed operators where's it best to put your money?

I'll look at Tesco after its next trading statement, due on 5 December, but we have had updates from both Morrisons and Sainsbury's relatively recently which have provided a picture of how they are doing ahead of what is the most important trading period of the year.

Those updates couldn't have been more different. Sainsbury's prospects seem to be as sunny as Morrisons are murky.

So to the former. Justin King's outfit reported a 1.9 per cent increase in sales from stores open at least a year in the 16 weeks to 29 September, which set the pace for rivals, who are currently struggling to keep up.

The improvement is accelerating. In the first half of its financial year the increase was 1.7 per cent.

The company might still only be Britain's third-largest supermarket chain by market share, but it is gaining ground and seems like the most dynamic at the moment.

Don't underestimate the success of the Paralympic sponsorship – the event massively outstripped expectations in terms of public interest. Channel Four even hurriedly relegated its flagship soap, Hollyoaks, to one of its digital channels so it could clear the decks for TV coverage of the event. Sainsbury's more than got its money worth.

The results were helped by booming, own-brand sales, the Taste the Difference Range, and the relentless march of its convenience stores. The company should have a care. My colleague, Simon English, recently highlighted the impact of one of its planned openings on a local shop near where he lives in these pages. As he pointed out, while the public seems to have fallen back in love with Sainsbury's it could just as easily fall out again if it starts to be perceived as a bully.

The other challenge facing Sainsbury's is to improve profitability. These are last year's figures, but its 3.9 per cent operating margin is way behind Morrisons (5.5 per cent) and Tesco (6.2 per cent but that will fall as it tries to revive its UK stores). Of course, it does control less of its freeholds. Will it have the flexibility to fight back if its rivals chose to attack on price? We'll see.

That said, it now trades on a very fair 11 times earnings for the year to 31 March, with a healthy, prospective yield of 5 per cent.

Keep buying while the sun shines on it.

Morrisons is in a different place. It's on a lower multiple (9.5 times full year to end January) but also offers a lower yield (4.6 per cent). That might not matter so much were it growing quickly, except that at the moment it's not.

Morrisons is losing market share to its rivals, reversing the previous trend under Marc Bolland, who drove it forward during its salad days before heading to M&S. He's found the going tougher. Perhaps he and successor Dalton Philips could console each other with a drink at the Capital Club.

Mr Philips has tried to expand the group's reputation for fresh food and wants to develop online and convenience.

I last looked at Morrisons when the shares were hovering at around 290p at the end of January. The advice was to take profits. That has been justified.

Morrisons in a muddle. I'd want evidence that it's getting itself out before investing.

Suggested Topics
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
Life and Style
food + drink
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
Life and Style
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
David Moyes and Louis van Gaal
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits