Is Tesco A Defensive Stock

last updated on

Is Tesco A Defensive Stock

Is Tesco A Good Defensive Stock?

Whenever the markets are jittery, everyone rushes to buy defensive stocks. But, it is also important to actually pick stocks that are actually defensive!

The sectors that are resilient and regarded as defensive are energy, supermarkets, and distribution. Based on that, Tesco stock looks like a good defensive option for many investors.

High Oil Prices Will Affect Tesco Distribution

But is Tesco really a good defensive stock? A quick look at the stock shows it does have some qualities of a defensive stock.

A key quality that makes Tesco a defensive stock is based on the demand. After all, people need to eat and do all other household chores. So, there will always be a demand for grocery shopping, and that's the biggest strength of Tesco.

But, this demand can also move to other market players during times of economic downturn. For example, people can start leaving stores like Waitrose or Marks and Spencer to get cheaper products from Tesco.

However, it is also equally important to translate the demand into revenue. However, Tesco operates in a sector where costs are regulated, and its main USP is lower costs.

Also, higher oil costs mean it will become expensive for Tesco to handle its distribution. In addition, higher oil prices can also translate into higher inflation, which will ultimately affect the sales volume.

For example, Tesco's operating margin was compressed during the pandemic. However, another side to this story is that it will ultimately affect all the other supermarkets too!

So, the bottom line is that Tesco is a very good defensive stock and has a lot of the defensive qualities that investors look for!

However, just buying the Tesco stock and thinking that it will not be impacted is wrong. The Tesco stock still has multiple risks that can affect it during uncertain times.

Also, the valuation of Tesco is very cheap when we look at others, such as Walmart. All of this tells us that Tesco is a good defensive stock that can be added to your portfolio.

Trending Stories