General retailers’ popularity has been growing of late. At the end of last week some big names rose again, at the expense of the food giants.
Although food stocks are often popular for their defensive qualities during tough times, the big grocers were not the flavour of the week. Last Friday Tesco was one of the biggest fallers as the FTSE 100 dropped. Sainsbury’s and Morrisons were both down too.
The decline was partly the result of profit taking. Investors were keen not to lose gains made in blue chip companies. But the price changes also reflected greater appetite from investors for cyclical consumer stocks. DIY giant Kingfisher, for instance, rose almost 5 per cent that day, while Anglo-French electricals powerhouse Kesa’s shares rocketed 11 per cent.
The grocers’ declines – particularly Tesco’s – also reflected some anxiety. JP Morgan, for example, made some damning comments about Tesco’s “over-ranged” stores, an offer that has become “too complex” and a total basket “pricey for part of Tesco’s customer base”.
Tesco posts full-year figures on April 21, when it will become clearer to what extent such concerns are justified. There has also been disquiet about the merits of the grocer’s Discounter offensive and an admission by US boss Tim Mason that mistakes were made during the launch of stateside venture Fresh & Easy.
But it’s not just Tesco. Broker Panmure Gordon, for example, has been cautious on grocers for a while. Although Panmure analyst Philip Dorgan has admitted to underestimating Morrisons’ recovery potential and increased his forecasts for Sainsbury’s, both are on his sell list. He argues that food retailers’ defensiveness was already reflected in valuations and that, despite some help from inflation, margins will fall across the industry in 2009/10. He said at the end of last month: “The market is now looking to the beneficiaries of the ending of recession and will continue to sell the late cycle plays.”
It looks as if he was right. Investors, sated on food stocks, are now looking for morsels elsewhere.