I’ve always been attracted to recovery stocks: companies where things are not going exactly to plan but where management is in the process of turning things around.
One such recovery play is Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), which had a profit warning in early 2012. Since then, CEO Philip Clarke has been trying to make his mark in the post-Terry Leahy era and is doing his utmost to turn around the fortunes of one of the largest retailers in the world.
So, I was pleased to see that the company is seeking to change its approach to China; a market that I think offers vast potential for Tesco.
Indeed, Tesco is seeking to form a joint-venture with state-owned China Resources Group, which operates the Vanguard and Ole supermarket chains.
Under the proposed deal, Tesco would continue to have a presence in China but in a way that consumes far less capital. Tesco would retain a 20% stake in the joint-venture and, in my view, such a deal would be great news after the disappointment of the Fresh & Easy US operation.
Such a joint venture could mean that Tesco takes on less risk and is able to plough capital back into other parts of the business that clearly need to be developed and improved.
In addition to the above developments, Tesco remains one of my top long-term picks. I simply cannot believe that such an attractive company trades on a price-to-earnings (P/E) ratio of just 10.3 when the FTSE 100 has a P/E of 15.1 and the consumer services industry group (to which Tesco belongs) has a P/E of 17.2.
In addition, with interest rates being so low and likely to remain low for sometime, Tesco’s yield of 4% makes a big difference to income-seeking investors like me. Indeed, I would recommend you take a look at this exclusive report if, like me, you are fed up of paltry bank savings rates.
The report is entitled The Motley Fool’s Top Income Share Of 2013. It’s completely free to take a look and it could provide a welcome boost to your annual income!
> Peter owns shares in Tesco.