3 reasons why I want to buy Tesco shares

This Fool takes a closer look at three key reasons why he’s been eyeing Tesco shares. He’d love to buy the supermarket titan.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Tesco plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesco (LSE: TSCO) shares have enjoyed impressive growth recently. They’re up 9.2% in 2024 and 27.1% over the last 12 months. That’s not bad considering the FTSE 100 has returned 3.8% and 6.1% during the same periods.

I’ve been keeping a close eye on the Tesco share price. The stock’s been on my watchlist for some time and now at 321.2p, I think I could be ready to pounce.

Here are three reasons I’m eager to add the stock to my portfolio today.

Should you invest £1,000 in Tesco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco made the list?

See the 6 stocks

Defensive in nature

I like Tesco because it’s a defensive stock. The products it provides are essential goods. Every day people need to eat food and drink.

With that comes benefits. For example, while some businesses see demand rise and fall in cycles, Tesco tends to see steady demand for its services regardless of external factors.  

Take the first quarter as an example. During that time, we endured ongoing economic uncertainty surrounding interest rates and inflation. But even with that, Tesco still delivered a 3.6% growth in its sales, including a 5% rise in food sales.

Top of the pile

Not only does Tesco operate in an industry that provides essential goods that are in constant demand, but it’s also the market leader by some distance.

It has a 27.7% market share. The closest competitor is Sainsbury’s with 15.3%. In third is Asda with 12.7%. Aldi takes fourth place with a 10% slice.

Its position at the top of the pile gives it a few advantages. Firstly, Tesco has incredibly strong brand recognition. It comes with other benefits too, such as economies of scale.

That said, Aldi’s position as fourth is evidence of the rise in budget competitors that pose a threat to Tesco. Aldi and Lidl have made good ground in recent years and have been aggressively stealing customers.

That’s been further fuelled by the cost-of-living crisis, which has forced consumers to shop around.

Aldi has now overtaken Morrisons, which has an 8.7% market share. Lidl isn’t too far behind Morrisons at 8.1%.

Passive income

Operating in a defensive industry also means the business tends to have steady revenue and cash flows. That’s great when it comes to rewarding shareholders with a dividend.

Tesco stock has a yield of 3.8%. That sits just above the FTSE 100 average. Last year its payout jumped 11% to 12.1p per share. It also purchased £750m worth of share buybacks.

I’d love to buy

I’m watching the rise of budget competitors, Aldi in particular, like a hawk. I think they’re a real threat. However, even with that considered, I still like the look of Tesco shares today.

In its latest update, it highlighted how the business was “the most competitive we’ve ever been”. It attributed that as to why its market share has grown more than any other time over the past couple of years.

If I had the spare cash today, I’d snap up Tesco shares. I reckon their defensive nature, its dominant market position, as well as the income on offer, would make it a great addition to my portfolio.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Young woman holding up three fingers
Investing Articles

Just released: our 3 top income-focused stocks to buy in January [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Here’s the growth forecast for Nvidia shares through to 2026!

Demand for Nvidia shares has soared as investors eye up US growth stocks. Royston Wild looks at the chipmaker's earnings…

Read more »

a couple embrace in front of their new home
Investing Articles

Down 30% in 3 months, is the Taylor Wimpey share price too cheap for me to ignore?

Taylor Wimpey’s share price has plummeted since September and the stock now yields 8%. Should our writer buy the shares…

Read more »

Investing Articles

Is the S&P 500 heading for a correction in 2025?

This writer wonders whether the blue-chip US index is ready for a stumble, with one popular S&P 500 share up…

Read more »

Investing Articles

£15,000 invested in Tesco shares at the start of 2024 is now worth…

This writer takes a look at the performance of Tesco shares since the start of last year and considers whether…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

3 passive income ideas for Stocks & Shares ISA investors to consider!

Searching for ways to make a gigantic second income? Royston Wild reveals three ways that ISA investors could build long-term…

Read more »

Investing Articles

Beaten-down FTSE 250: a chance to get rich in 2025?

FTSE 250 stocks have endured a tough few years, with these typically UK-focused businesses suffering amid broad macroeconomic challenges.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

6.5% dividend yield! Here’s the dividend forecast for BP shares through to 2026

City analysts expect the dividend on BP shares to keep growing. But just how robust are current estimates? Royston Wild…

Read more »