Investment: No Pain, No Gain: Our Man's Portfolio; Safeway may be one way to shop for that blue chip bargain

BLUE CHIPS cannot be expected to make relentless headway. They are, of course, mauled during a bear market. And even the best may occasionally fall on hard times, sending their shares skidding into a seemingly bottomless pit, while the rest of the market is heading north.

There is no doubt that past market setbacks have presented ideal buying opportunities. The stupefying 1987 meltdown, which prompted investors around the world into blind and panicky selling, is now regarded as little more than a blip. Anyone who did manage to buy at the depressed 1987 prices, and I know dealing then was extremely difficult not to say impossible, has since been able to reap rich rewards as shares have hit new highs.

A splendid buying opportunity occurred only months ago. In October, worries about Asia and Russia and the perceived impact of the near failure of the highly sophisticated Long Term Capital Management hedge fund, sent Footsie sliding to 4,698.9. In the chill autumn climate, for example, Dixons, now 1,473p, was below 500p, and P&O, sailing at 967p, could be found at 489p.

Market crashes are often unexpected. Few observers expect one this year. The more realistic pessimists see mere consolidation, or at worst a gentle drift to around 5,700, as about the most bearish display we can expect.

So investors hunting for the cut- price bargains should seek a blue chip that has fallen out of favour yet should have the strength to recover its winning ways. Safeway could fit the bill. The supermarket chain has had an appalling run, falling from 426.5p to 248p in a few years as profits weakened and the market has questioned its strategy.

Profits are due next month; they will be disappointing. Around pounds 348m (against pounds 340.2m) is the analytical consensus. A few years ago Safeway nudged pounds 430m. The group's fall from grace has been brutal but there is evidence the chain is clawing its way back.

It was once, of course, the preserve of the legendary Jimmy Gulliver. In his day it aspired to be a leading drinks group as well as a supermarket force. But once it lost the infamous battle with Guinness for control of the staid old Scotch whisky and gin group, The Distillers Co, the Gulliver star waned and the drinks side, his special love, was unceremoniously ditched.

At first the concentration on supermarkets looked a shrewd move. But Safeway has been squeezed by the growing power of J Sainsbury and Tesco and the recovery by the once-ailing Asda. Still if next month's results are in line with expectations Safeway's shares are clearly undervalued. They are selling at less then 10 times earnings and offer a pretty safe 5.8 per cent dividend yield; not bad in these low interest rate days. A leading analyst, Paul Smiddy at Credit Lyonnais, has called the share price "ludicrous".

The year, which ended last month, may represent the nadir of Safeway's fortunes. But even if there is further disappointment the group, which already looks vulnerable to a predator, could find its independence under threat. Safeway has already held talks with Asda; they were abandoned because of perceived Westminster opposition. But other possible buyers hover. Wal-Mart, the big US retail group, has made no secret of its desire to expand into Europe and a struggling Safeway could well prove to be the vehicle it selects.

Then there is Royal Ahold. The Dutch supermarket chain is in an acquisitive mood. Rumours swirled last month it had set its sights on Safeway as the aisle for its British expansion. It will, no doubt, wait until Safeway has rolled out its figures before deciding whether it is worth making a pitch for the chain.