Earlier in the year, coronavirus-fueled panic buying put supermarkets in the headlines. As a result of the pandemic, the food industry and online shopping have become increasingly important to people sheltering in place. Citizens around the world have amended their daily working and purchasing habits to reflect the growing stay-at-home trend.
While people have stockpiled food items, shares of food companies have caught investors’ attention. Due to revenue growth and improved margins, share prices of many of these stocks, especially in the U.S., have held up well in the past six months. Several of them have even hit new 52-week or even all-time highs in recent weeks.
A diverse range of companies operate in the food chain, each playing a different yet vital role in feeding billions worldwide. They include farms, agricultural firms, commodity businesses, food producers, distributors, grocery stores, restaurants as well as delivery services.
The pandemic has put the role played by these businesses more in the limelight. Their managements have addressed the growing demand (from fresh groceries to comfort foods to healthier eating) and changing consumption trends (like ordering online or cooking more for the family).
Today, we’ll discuss several FTSE food and grocery shares, also listed in the U.S., that may deserve your attention this fall.
Grocery Names in the FTSE 100
According to data provided by KANTAR, Tesco (LON:TSCO), (OTC:TSCDY) is the largest grocery chain in the UK, and one of the most valuable retail brands globally.
Tesco is the largest of the four grocers listed in the FTSE 100, the UK’s main equity index, both by market value and by industry market share. The others (in alphabetical order) are Morrisons Supermarkets (LON:MRW), (OTC:MRWSY), Ocado (LON:OCDO) and Sainsbury (LON:SBRY), (OTC:JSAIY).
Year-to-date, the FTSE 100 is still down more than 20%. By that measure, on the other hand, all four grocery stores in the index have outperformed. Here's how they've fared so far in 2020.
Clearly, Ocado has been the winner to-date in 2020, followed by Morrisons.
Our UK-based readers will be familiar with the fact that Ocado is an online-only grocery retailer. It operates without any physical stores. All the others have brick-and-mortar outlets in every corner of the country.
In fact, many regard Ocado as more of a technology company than a supermarket. It had its IPO in July 2010. Since then, OCDO shares are up about 1,500%. Put another way, £1,000 (US $1,328) invested in the company in its early days would now be worth about £16,000 (US $21,250).
We expect Ocado shares to deliver value to shareholders in the new decade, too. As a high-growth name, it has never paid dividends.
As of Sept. 1, Ocado will start a new partnership with Marks & Spencer Group (LON:MKS), (OTC:MAKSY), whereby M&S Food products will be available for delivery from Ocado. M&S replaces Waitrose in Ocado’s supply chain.
Marks & Spencer, whose history goes back to 1884, also sells general merchandise, like clothing, beauty and personal care products as well as home accessories. This new partnership may benefit MKS shares, which are listed in the FTSE 250, UK’s junior index. So far this year, the stock is down more than 47%. With a forward P/E of 20.92 and P/S of 0.21, contrarian investors may begin to find value in MKS.
In March, Marks and Spencer scrapped its dividend.
Should Investors Buy UK’s Other Supermarkets?
Those investors looking for passive dividend income may want to research TSCO and MRW shares further. Their respective dividend yields stand at 4.1% and 3.5%. However, in April Sainsbury put its dividend on hold.
Market participants may also be interested to know that since 2016, Morrisons and Amazon (NASDAQ:AMZN) are in partnership in the UK. Morrisons at Amazon grocery delivery service runs on Amazon’s Prime Now platform. Their partnership has been growing in the past several months, with many investors wondering if Amazon may end up acquiring Morrisons.
While we mention Amazon, we’d like to remind readers that in the UK, Asda, the third-largest grocery store in the country, is under the control of U.S.-based Walmart (NYSE:WMT), the world's largest company by revenue.
As 2020 has changed priorities for many people, it has also resulted in investment portfolios evolving. Investors who are interested in UK-based grocery stores have access to a several names. In addition, they may consider buying into the shares of companies like Amazon or Walmart, whose overseas operations are also substantial.
On a final note, year-to-date, AMZN and WMT shares are up more than 85% and 15%, respectively.