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Stock of the week: Sainsbury’s

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Graham Spooner, investment research analyst at The Share Centre, picks retailer Sainsbury’s as a 'buy' for contrarian investors.

It’s been a busy few weeks for supermarket giant Sainsbury’s following a confirmed takeover bid for Argos and Homebase owner, Home Retail Group. In the wake, a number of brokers have upgraded their expectations, based on the takeover expecting to bolster profits and grow sales. This move is viewed by some as an attempt to improve its online presence and compete with the likes of Amazon.

Furthermore, in a trading update reported recently, the company said that like for like sales rose by 0.1% in the three months to 12 March. Albeit this is a small increase, investors should acknowledge that it means the company returned to sales growth for the first time in two years. The company’s better-than-expected sales figures were helped by a rise in online grocery sales, which were up nearly 14%.

The group believes that it will phase out its multi-buy promotions by August and are confident of outperforming its nearest rivals. Sainsbury’s has teamed up with Danish discounter Netto to open up a number of stores in the UK to help it combat the challenges it is facing from the discount chains Aldi and Lidl. This should give it a better insight into how the discount grocery sector works while offering it exposure to an attractive growth channel.

We continue to recommend Sainsbury’s as a ‘buy’ for contrarian investors only, as the company leverages its range of shopping channels, diversifies its products and services and focuses on flexibility and convenience. This is where it has advantages over the likes of Aldi and Lidl. Moreover, its balance sheet should put Sainsbury’s in a stronger position over peers to defend its market share.

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