The FTSE may be down over 4% but Morrisons has soared 11% across the morning session, thanks to business rates holiday, consumers stockpiling and the recession proof nature of supermarkets.
Morrison’s was the first of the big four supermarkets to release full year results:
- Like for like sales excluding fuel -0.8%
- Full year revenue -1.1% £17.5 billion
- Underlying pre-tax profit +3% to£408 million
Last year already seems like an eternity ago! Like for like sales declined across the previous year owing to political uncertainty, strong comparisons from the previous year and increased sales. However, investors have been quick to shrug off last year’s concerns, focusing instead on the Covid-19 impact.
Morrisons confirmed like for like sales in the first 6 weeks of this year jumped 5%. The coronavirus fear factor became really noticeable a few weeks later. Judging by the empty shelves in the supermarkets like for like sales have continued to soar, and not just at Morrisons, but at supermarkets across the board.
Recession proof stock
The UK is heading for a recession. With stricter social distancing, isolation and quarantine measures coming into play consumption has dropped sharply and thousands of jobs will be lost. A recession is inevitable. The Government and BoE are doing what they can to prevent the oncoming recession becoming a depression. Supermarkets across the board will benefit from the business rates holiday.
With a recession coming and the FTSE in free fall now is the time to buy stocks that we simply can’t live without. These are recession proof stocks; defensive stocks outperform the broader market in a time of economic downturn. Supermarkets and consumer staples fall into this category. The demand of most of a supermarket’s products will remain constant even in a recession because they are necessities rather than luxuries.
Morrisons have announced it is creating 3500 jobs to cope with the increased demand, almost all of which is online.
The risk will be if supply chains start to experience large disruptions and stock doesn’t arrive to the shops. Whilst we are still a long way from this position it is worth keeping in mind given the rapidly changing nature of the coronavirus impact.
Levels to watch
Morrisons has surged back above its 50,100 and 200 sma on a bullish(4 hr) chart. At 200p it is trading around where it was at the start of the year, recouping all losses year to date.
Immediate resistance csn be seen at 203p, (today’s high) perior to 210p (Sept’19 high).
Support exists at 186p (200 sma) prior to 180.4p (today’s low) and 179p (100 sma)