This article goes to the very heart of investing. That is, where you should put your money, and more importantly, with whom?
You see, the whole point of investing (as opposed to trading) is to place your hard-earned cash somewhere its going to grow. Quite literally, somewhere its going to come out bigger than when it went in.
The reason why investing is so tricky is that the goal posts continually change. That means while it may make sense to invest in one company in one year, it may make more sense to invest in another, perhaps very different company, in another.
Allow me to introduce you to one company that is a good fit for 2014/2015. Its Tesco (LSE: TSCO).
Now you might say to me, have you seen the headlines for that company recently? and yes, the press has not been kind. Thats for two main reasons. First, its revenue is falling, and second, its market share is falling. That sounds like a knockout one-two punch but its not.
Tesco is dealing with what many retailers are dealing with in the UK right now: increased price competition (both domestic and overseas) and changing consumer behaviours and patterns.
Tesco, however, has executed one very important strategy to enable it to bust out of its current funk: it has removed an underperforming leader and replaced him with a (hopefully) performing one, Mr Dave Lewis.
Mr Lewis is facing some tough challenges. First and foremost, he has to work out a way to beat off some stiff competition competition from the likes of Aldi and Lidl. You see these companies offer their products at a discount to what youll find in Tesco. Thats because theyre budget or no frills stores. Tesco neverless has found itself competing with them (despite the fact it is a higher end brand). Its not at the top end of the market, but its certainly not at the bottom. Naturally its being undercut, so the board has brought in a man whos a specialist in resuscitating lost causes.
So what he is likely to do? Well, analysts in The City are only speculating at this point, but the good money is predicting he will divide the Tesco brand into three different segments. Each segment will then tackle a different part of the market: low end; middle of the range; and high end. Do you remember when your commerce teacher told you at school that the way to sell soap was to make it three different colours: green (the budget soap); pink (for the middle of the range); and white (for the upper class)? Well, thats kind of what Tesco wants to achieve.
Most importantly of all, Tesco has the scale to execute this strategy. In many ways it will be scaling back to achieve this turnaround. A smaller animal wouldnt have the ability to change its spots quite as effectively. Mind you, if it doesnt work then it will likely be gobbled up at the tale end of the turnaround but thats an unlikely scenario in my view.
Finally the macroeconomics.
Make no mistake, many investors around the world though years on now since the Great Recession are still hesitant to take on risky stocks. Theres a good reason for that people dont want to lose their money!
In that regard, consumer staple stocks have become the bread and butter for many investors. The returns these stocks offer at present make their risk/reward profile so much more attractive than in the early stages of a longer-term bull run.
Tesco might be a slow horse at present but, with the right trainer, I think shes got the makings of a stayer.
So if you’d like a reliable horse to back — a horse that’s going to go the distance — read this Motley Fool Special Report: “5 Shares To Retire On.”Tesco is one of them, and the report has got some juicy insights into four other stocksthat we think will look after you in the long run.
There are some extra benefits to these type of stocks as well. They’re great to retire on because they pay big fat dividends. You can’t just buy all these companies up when you retire, though. You have to build up a portfolio over time. For more on how to approach doing exactly that, read another of our free reports, “How To Create Dividends For Life“.
David Taylor has no position in any shares mentioned. The Motley Fool UK owns shares in 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.