Could the Sainsbury’s share price help you retire early despite the rising State Pension age?
With the State Pension age set to increase to 68 within the next 20 years, FTSE 100 shares such as J Sainsbury (LSE: SBRY) could become increasingly appealing. The company appears to have a sound strategy and could benefit from its plan to merge with Asda. This has the potential to create a stronger entity, which could deliver synergies as well as a lower cost base.
Of course, it’s not the only stock which could be of interest to investors seeking to retire early. Reporting on Tuesday was a FTSE 250 food producer which seems to have a relatively resilient business model.
Improving prospects
The stock in question is Cranswick(LSE: CWK). Its interim results showed that revenue and profitability increased marginally versus the same period of the previous year on an adjusted basis. However, it continues to invest heavily for the long term, with record capital expenditure of £41m being recorded as it seeks to provide a strong platform for future growth.
Its construction of a £60m primary poultry processing facility is under way. It has also commissioned a new £27m Continental Foods facility, while making significant investment in upstream agricultural operations in both pork and poultry. This should ensure supply chain integrity and sustainability over the medium term.
While Cranswick trades on a price-to-earnings (P/E) ratio of 18, it could still have investment appeal. The business has a strong track record of earnings growth, with double-digit earnings being recorded in each of the last three years. As such, and with the prospects for the FTSE 100 and FTSE 250 being uncertain at the present time, it may offer investment potential for the long run.
Changing business
Sainsbury’s may also be able to outperform the wider index and improve an investor’s chance of retiring early. The company’s decision to merge with Asda could create a stronger entity in the long run. Synergies and increased buying power are expected from the deal, and they could help to drive profitability higher in the next few years, while many sector peers struggle to cope with continued weak consumer confidence in the UK.
Clearly, competition in the industry is due to increase. Aldi and Lidl, for example, are not slowing down in terms of their store expansion, while the continued threat of online means that the efficiency of major supermarkets may be called into question over the medium term.
However, with Sainsbury’s forecast to post positive earnings growth in the current year and next year, it could offer an improving outlook for investors. A P/E ratio of 15 may not be especially attractive given the difficulties facing UK consumers. But with what seems to be a sound strategy which includes a clear catalyst as a result of the Asda acquisition, the stock may be able to generate impressive long-term share price performance in my opinion.
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Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. 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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