Tesco (LSE: TSCO) (NASDAQOTH: TSCDY) is a stock that I love investing in. For me, it offers a fantastic long-term play on the UK economy, where recent data has pointed towards a considerable improvement in fortunes.
Indeed, services activity in the UK recently hit a six-year high, with the purchasing managers’ index of 700 services companies rising to 60.5 for August. This was not only higher than July’s figure of 60.2, but went against market forecasts that the figure would fall in August.
The figure is well above the crucial 50 mark that separates contraction from expansion, and is now at its highest level since December 2006.
So, suffice to say, prospects for the UK economy look better than I can remember for a very long time.
Although this is good news for everyone, as a private investor I want to take advantage of this positive news. So, what better way to benefit than invest in the retailer where one-eighth of all UK retail spend is made? That company is Tesco.
Indeed, a renewed focus in the UK following the announcement to sell Fresh & Easy in the US has seen the company play catch-up with rivals such as Sainsbury’s. Tesco has produced a very similar marketing campaign to Sainsbury’s, with its brand match being almost identical except that it includes own brand products as well, while Sainsbury’s campaign is only for branded goods.
In my view, this gives Tesco a substantial edge in the value segment, as customers know that they are not losing out versus other supermarkets on all of their shopping. It also means that Tesco is competing more on price, with the campaign seemingly ignoring the difference in quality between Tesco and Sainsbury own-brands. This is a battle that Tesco, with its highly efficient supply chain and huge purchasing power, is likely to win in the long run.
Furthermore, Tesco offers a yield of 3.9%. This not only beats the best savings accounts the high-street banks can offer, but also provides a real income (after inflation is taken into account).
So, with a strong marketing campaign, a large exposure to the UK where the recovery seems to be taking hold and a strong yield, Tesco remains one of my favourite shares to invest in.