The Supermarket Companies Want To -Take Over The World - Sainsbury's Looks Good Value

It's a common thread in business that when one company is seen to be doing exceptionally well others enter the arena, or at least those already in the sector become increasingly competitive.

I recently read that the ultimate goal of the supermarket companies is to take over the world. If you think about it, and relating directly to Tesco, it doesn't seem that far fetched.

Right now you can use Tesco for almost everything, food, electronics, clothes, insurance, banking, and petrol. Presently Tesco apparently generates more revenue from its operations abroad than it does in the UK, having a very strong presence in both Eastern Europe and the Far East.

Sainsbury's Is Certainly Lagging Behind - A Potential Opportunity

Will Sainsbury's management (or future management) let Tesco walk away with all the prizes and cash?

On present form it looks likely but I'm a strong believer in cycles, especially when it comes to investing. With cycles in this situation I'm not suggesting that Tesco will start to wane and Sainsbury's will take the lead, rather that Tesco will remain strong but Sainsbury's will finally get its act together and do considerably better.

A good example of Tesco's strength right now versus Sainsbury's is in its online presence and home delivery. When I'm out driving I normally always see a Tesco home delivery service but almost never a Sainsbury's van. Do you think that Sainsbury's management aren't seeing these types of lost opportunities when the internet can be such a potentially profitable sales tool for these types of companies?

And while still on the subject of the internet I've got a Sainsbury's Credit Card and logging on and managing my account online is dreadful and sours my overall view of Sainsbury's online presence.

Put frankly there are no excuses for any mega capitalised company in the retail business not to get matters such as this almost perfect. So you might have to spend £500k on employing the best internet usability experts available - a cheap and super profitable investment if you ask me.

Sainsbury's internet presence looks to me like a glaring area where the company can massively improve and start taking the battle to Tesco (at least in the UK).

My Takeover Theory

Another strong belief I have is that when any company experiences a takeover attempt that fails, as Sainsbury's recently did, that doesn't mean the company goes back to business as normal (in the potential takeover sense).

What often happens is that other parties get interested and it's just a matter of time before there are some more fun and games.

Within the last year Sainsbury's has experienced two semi-takeover attempts. They were both private equity type deals which for many reasons fell through. I would therefore suggest that if Sainsbury's keeps performing at its present rate then it is almost inconceivable that other parties won't be sniffing around. This regardless of the current credit crisis because there's always plenty of money available for the right deal at the right price.

You can read more about the 2 recent takeover attempts on this Wikipedia link

Sainsbury's As A Long Term Investment

We have not bought any Sainsbury's shares yet but are most probably going to start building a long term position over the next few weeks. As with other shares we buy we'll most probably start off purchasing a core holding and then look to add if the shares weaken.

So assume we want to invest a total of £5,000. We'll buy something like £2,500 as the first purchase and then the balance if/when the share price weakens.

The risk of course to this style of investing is that we don't invest the full amount initially and the shares then start to take off. But in the current stockmarket climate, one which we think will be rocky for the foreseeable future, it's probably better to be a cautionary investor rather than a gung-ho one.

Whatever happens I think Sainsbury's is a share that you should put on your watch list as there's likely to be some real action over the next few years. Plus don't forget that the supermarket sector should do generally OK if the UK does slip into recession - we've still got to buy our cornflakes, milk, apples, washing powder etc.

Short Term Traders - Be On The Lookout For The Forced Seller Play With Sainsbury's Shares

Have you ever bought shares in a company (or traded futures, spread bets, FX etc) and got the trade 110% wrong? So wrong in fact that your losses get out of control and move yet further out of control as the market continually moves against you.

I have experienced this nasty situation, as no doubt many readers have, and there comes a time when the financial and emotional pain (strongly related of course) become just too much and we are literally forced out.

What you will have noticed and most probably won't forget either is that as soon as you sell prices start to rebound, ie you sell pretty much right at the low. The so called curse of the forced seller.

Keep One Eye On These Potentially Overstretched Entrepreneurs

The Tchenguiz brothers have been a feature of the front page of the business press for some time now but unfortunately for them they might be about to witness the curse of the forced seller first hand.

These businessmen brothers are buccaneers and no doubt extremely successful at their trade but anyone, regardless of their pedigree, can get over-stretched as it now appears with them.

It seems the brothers have always got 101 deals going on, most of them highly geared which of course in the current business climate is just what you don't need. One of their investments is a 10% holding in Sainsbury's, rumoured to have been bought in excess of £5 (current price is around £3.40). Looks like they were doing the classic takeover arbitrager play of buying a large block of shares on the assumption that -

1. Any bidder would increase his bid price, and
2. Any bidder would of course be very interested in acquiring such a large holding

These Sainsbury's shares will be an easy asset to sell and with bankers and traders rumoured to be circling the brothers' business interests it might mean they're forced to sell their shares. And I'd bet that if this were to happen it would signal a classic buying opportunity.

If they are forced out I don't know if the information would be publicly announced but juicy news such as this would surely leak out especially as after the event it wouldn't be insider trading. This is the UK remember, and many people are always fond of a bit of schadenfreude for breakfast.

Personally, and I don't short term punt that often, I'd be a strong buyer of Sainsbury's on any such news and would look to sell them for a quick profit within 1-2 weeks.

• Independent article on the current Tchenguiz problems

A Classic Example Of The Curse Of The Forced Seller

Back in September 2006 a giant US hedge Fund, Amaranth Advisors lost around $6billion or roughly 70% of its funds under management because its massive gamble on rising Natural Gas prices went disastrously wrong.

In effect its portfolio of 'investments' had to be sold off, it was a forced seller.

So guess what happened to Natural Gas prices? The fund's holdings were sold right at the low and over the next few months the price of Natural Gas rallied by around 60%.

A classic example of people being forced out and selling at or around the low. Personally, I know of a few traders who have made significant gains over the years by always being on the lookout for these kinds of trades.

• Wikipedia article on Amaranth Advisors

Spread Bets Are Great For These Quick Trades

Spread Betting certainly comes with advantages AND disadvantages attached. But to trade somewhat unusual instruments such as Natural Gas they're often the best products to use. This is for two main reasons -

1. With the one account you get access to pretty much all the major trading products on the planet, no need for example to open a separate account with a commodity or futures broker
2. You can trade spread bets in really small monetary amounts whereas if you trade the futures even the smallest position of 1 lot can easily translate into $1,000s in profits or losses

So if you want to risk say £250 on a commodity punt it's only really possible with spread bets because you just trade with a small amount per point. Important though to check exactly what a minimum tick (the smallest price movement allowable) is on any product you're trading.

If in ANY doubt call your broker up. I cannot stress the importance of points like this enough because a lot of money is always being lost on account of clients new to certain products not fully knowing exactly what they're doing.

A New Spread Betting Firm Offers Free Guaranteed Stop Losses

One reason many are apprehensive about dealing with spread bets and margined products in general is because losses can't really be fixed to a predetermined amount.

But to counter this the Spread Betting firms all introduced Guaranteed Stop Losses, which as their name suggests will guarantee a loss to a set monetary amount.

By using a guaranteed stop even if the market suddenly jumps or slumps on some crazy news it's impossible to lose more than was initially agreed when the trade was first entered.

However, personally speaking I've never been a great fan of guaranteed stop losses because they are generally expensive. Think of them like an insurance policy and one which I prefer to self insure.

But the long established City broker ODL Securities has recently opened a Spread Betting division and one the accounts it offers lets clients enter guaranteed stop losses for free, a facility which no other broker currently offers.

This new service offers three different spread bet accounts all aimed at traders with different levels of experience.

• Check them out at www.ODLMarkets.co.uk