The banking and supermarket sectors have been twoof the worst performers for nearly adecade, hitting a swathe of household names, including the following two companies. Can they buck their sectoral trends?
Big bad banks
Years after the financial crisis, banks remain a miserable place to put your money. In fact, the sector seems to go from bad to worse, as US supervisorslaunch one European bank job after another, in what looks more like an aggressive tax grab than an attempt at sensible regulation. However, this isnt the only reason that theshare price atBarclays (LSE: BARC) is down another 30% over the past 12 months.
Barclays is increasingly looking like two separate businesses, and the good news is that management is looking to focus on the winning half, while dumpingthe loser. Its core business posted first-half profits before tax of 3.9bn, a rise of 9%, which makes it a keeper. By contrast, its non-core business made losses of 1.9bn, justifying managements decision to kick it into touch. The business is shrinking, with assets down another 8bn to 46.7bn, helped by the sale of Barclays Africa, but there is still some way to go.
Two-way split
Bank balance sheets became so complex beforethe financial crisis that it was impossible for investors to see where the value really lay. Barclaysearnings and dividends will continue to disappoint until the remaining non-core assets are finally off the books. Management can then focus on squeezing all possible value out of Barclays UKs retail and small business banking operations, and Barclays Corporate & Internationals business and investment banking, and international cards operations.
Chief executive James Staley will deservesthegratitude of investors if he makes a success of simplification. There are plenty of potential pitfalls. For example, we dont know theimpact ofBrexit yet, but EU passporting rights lookincreasinglyvulnerable. Barclays looks tempting at 10.11 times earnings and yielding 3.90%, just beware nasty surprises.
Life tastes worse
The grocery sector has been a tough place to be for years, as long-term investors in Sainsburys (LSE: SBRY) know all too well. German discounters Aldi and Lidl have ramped up competitionto unforeseen levels, whileincomes stagnate. The stocksperformance hasleft a bitter aftertaste, down 37% in the last three years. There is little sign of any respite as the supermarket price war intensifies, and withSainsburys posting a 1.1% decline in like-for-like sales,reversing the recent positive trend. Its market share has dippedbelow 16%, according to latestdata from Kantar WorldPanel.
Thin gruel
Food deflation is hurting margins, witha basket of goods 1.3% cheaper than it was last year. That works in favourof Lidl,the fastest growing supermarket with sales up 12.2%. Its upmarket push is targeting Waitrose but Sainsburys could also fall victim.
Sainsburys is more than just a grocer it could be considered ageneral merchandise retailer. Around15 Argos Digital outlets have already been opened in Sainsburys stores and a further 200 new digital collection points will followby the end of the year, which could boost footfall. Yielding 4.93% andtrading at 10.16 times earnings, the stocklooks priced to go. Sainsburyswill survive, but whether it thrives is a different matter.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.