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Is now the time to buy Tesco shares?

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It’s been a tough year for Tesco (LSE: TSCO) shares. The stock is down over 16% this year. In the last 12 months, it’s fallen 4%.

Macroeconomic pressures continue to dampen investor sentiment. And it’s clear to see the impact that it’s having on the UK’s biggest supermarket chain’s share price.

However, I’m contemplating whether this is a chance for me to grab some cheap shares. Let’s find out.

Steady demand

My main attraction to Tesco is the relatively safe nature it provides as a business. The company clearly isn’t immune to the damning effects inflation is having, as we’ve seen. However, regardless of economic conditions, there will always be — to some extent — demand for Tesco’s products. While we’ve seen retail sales tumble this year, food has seen little change.

In its latest results released in June, this is highlighted through the 1.5% growth in UK & ROI sales seen compared to the same period last year. And on a three-year like-for-like basis, sales have grown 9.7%.

What also draws me to Tesco is its geographical diversification. While rising inflation is a common theme across many countries worldwide, the extent of damage is variable. With 9% growth in its central Europe sales year over year, this shows the firm isn’t solely reliant on domestic sales.

What’s also another pull to the stock given the current economic environment is its enticing dividend yield. At the time of writing, this sits at 4.4%. While this is far from inflation-beating, it does offer a greater return than the FTSE 100 average. On top of this, Tesco has paid out to shareholders consistently for the past five years. As a potential investor, this is an encouraging sign.

Budget competition

The obvious threat to Tesco is competition. With the cost-of-living crisis, it’s understandable that consumers will likely turn to cheaper, more affordable stores.

In light of this, yesterday it was revealed that discounter Aldi had overtaken Morrisons to become the fourth-largest UK supermarket.

Research group Kantar said Aldi’s sales rose by nearly a fifth in the 12 weeks to 4 September, giving the German firm a near-10% market share. With the grocery market worth an estimated £131bn, both Aldi and Lidl have a combined 16% slice of it. With costs looking like they’re set to continue to rise, this could spell trouble for Tesco.

The firm has hit back at discounters with its Aldi Price Match and Low Everyday Prices products. For Q1, the overall distribution of these rose 19% year on year. However, with inflation ramping up in Q2, we will have to wait and see just to what extent these moves have deterred shoppers from switching.

Am I buying?

So, is now the time to buy?

Well, despite the hit it’s taken this year, I see Tesco as a solid investment. Despite consumers opting for cheaper alternatives, with its dominant position I think it’s hard to write off the superstore. Its dividend yield is also an added bonus. While its next set of results may provide a better picture of the impacts of inflation, I’d be willing to open a small position in Tesco today.

The post Is now the time to buy Tesco shares? appeared first on The Motley Fool UK.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.