These days, we live in a world of endless choice what people often call the world of the long tail.
No-one sums up the beginning of theage of choice better than Malcolm Gladwell, in his talk about choice, happiness and spaghetti sauce:its a fascinating video (which you can watchhere). His story about Howard Moskowitzs search for the perfect spaghetti sauce is both humorous and insightful; ittells how, by increasing choice, consumers can find so many moreavenues to happiness.
Pay TV is a money spinner
According to Gladwell, these dayscompanies dont ask consumers what they want. Instead, the onus is now on the companies to think up products which peoplewill enjoy. It is the businesses that are most innovative in creating these choices that succeed.
Take broadcasting company BSkyB (LSE: BSY). I remember, as a child, watching justBBC1, BBC2 and ITV. These days there are hundreds of TV channels, there is HD, 3D,video streamingand the ability to pause live TV. BSkyBprovides ahuge variety of TV programming, from sports and films to dramas and kids TV, and by providing this choice as a seamless, multi-platformexperienceits product offerhas attracted millions of customers. Investors have now realised what a money-spinner pay TV is, and BSkyBs share price has continued its upward trend.
Yet the fundamentals show that this company is still reasonably priced. A 2014 P/E ratio of 14.2 falls to 13.9 in 2015. The dividend yield is 3.5%, rising to 3.8%. This is a company which produces a high and rising dividend yield, and yet is still growing. The share price has already risen substantially, but this businessis still a worthwhile investment.
Is Tesco now oversold?
Tesco (LSE: TSCO) is another company which has embraced the age of choice, and its success over the past decade is largely down to providing choice beyond anything that has been provided in retail before.
Tescos share price has fallen sharply recently, as the business has felt the pressure of competition in retail which is as fierce as it has ever been. Are shoppers now so choosy they are now picking and choosing between supermarkets as if they were picking and choosing between brands of pasta sauce?
Yet, the fact is that I still do most of my shopping at Tesco, that this supermarket provides almost all the variety I need from my shopping, and that my local Tesco always seems packed.
A snapshot of the fundamentals shows that this business is now remarkably cheap: even after all the profit warningsthe 2015 P/E ratio is only10.3, with a dividend yield of 2.6%. After recent share price falls, you can now choose from a broad range of incredibly cheap shares. But I just might be adding Tesco to my shopping basket soon.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended British Sky Broadcasting and Tesco. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.