Another reason I'd sell Morrisons to buy this FTSE 100 stock

The market has once again gone giddy over WM Morrison Supermarkets(LSE: MRW) over the past five weeks, its share price rising by almost 20% during this time. I, for one, remain happy to sit on the sidelines.

Morrisons has performed admirably in the face of mounting competition to reinvigorate its allure with increasingly cost-conscious shoppers, the business doubling-down on price cutting and product improvements to help earnings rise by double digits in the last couple of fiscal periods. Indeed, like-for-like sales rose by an impressive 2.8% in the 12 months to January 2018.

And the FTSE 100 retailer is backed by many to keep profits on an upward slope, particularly now its Morrisons.com online portal is now up and running, and it continues to focus on improvements to its multi-channel offering. Morrisons announced plans to expand its 'Morrisons at Amazon' service with the US retail giant into more postcodes in London and Hertfordshire last month, as well as other major metropolitan areas in the north and the Midlands, for example.

Merger adds extra problems

I remain fearful, however, over the long-term profits outlook for Morrisons as the price wars become ever-more vicious.

I have long warned over the likes of Lidl and Aldi as they steamroller most of the competition, and they printed sales rises of 10.3% and 10.7% over the 12 weeks to March 25, according to Kantar Worldpanel. Ongoing expansion here threatens to keep the established operators on the backfoot. But an extra problem has emerged for Morrisons over the weekend with news that Sainsbury's and Asda are planning to merge.

Whilst the deal still has to pass the scrutiny of the competition watchdog, such a move threatens to put a dent into Morrisons' profit margins. Sainsbury's has said that the tie-up with its British rival will allow its shoppers to snap up many staple products up to 10% cheaper from today's prices.

These competition issues have caused City analysts to slash their earnings estimates in the medium term, and they are now predicted rises of 6% and 8% in fiscal 2019 and 2020 respectively.

Forecasts now leave Morrisons dealing on a forward P/E ratio of 18.7 times, and this is far too high in my opinion given the risk that the supermarket may disappoint the market with its profits performances in the medium term (not to mention further down the line). I would be sorely tempted to sell now given the worsening trading backcloth.

Check this out instead

Those scouring the FTSE 100 for shares in better shape to deliver sustained profits growth would be better served by investing in Informa (LSE: INF), I believe.

Now, things aren't exactly looking rosy in the near term, with the events organiser and publishing specialist expected by the Square Mile to record a rare 1% earnings reverse in 2018.

However, the fruits of its proposed tie-up with UBM -- a plan that has received regulatory and shareholder approval in April -- provide exceptional earnings possibilities for the years ahead. Indeed, an 8% profits rebound is predicted for next year, and with all of Informa's existing units back in growth I reckon the outlook is pretty rosy to put it mildly.

A prospective P/E ratio of 16.1 times is a small price to pay to tap into this compelling share, in my opinion.

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Royston Wild has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

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