Where the Sage of Omaha leads, others soon follow - so Warren Buffett's sell off of his stake in supermarket Tesco is sure to signal a slump in the food retailer's share price.
Buffett only topped up his Tesco holding in March this year, taking his holding from 3.21% to 5.08%, buying when the stock bombed out at 323p. But following a fall in like-for-like sales and pre-tax profits revealed earlier this month, perhaps the Buffett felt it was time to sell.
Berkshire Hathaway, Buffett's business retains a 3.98% stake Tesco, which it has owned in part since 2006. Tesco remains one of Buffett's largest holdings outside the US.
Tesco is not the only supermarket to be favoured by the investing heavyweights. Despite a failure to move into the online space and an unsuccessful rebranding, Morrisons was snapped up by income investors Neil Woodford, whose timing, as always was impecible. Within six months of the Invesco Perpetual fund manager buying the shares in January, Morrisons announced a deal with online retailer Ocado to distribute its produce.
Analyst findings are detailed below.
TESCO (TSCO)
Tesco reported weak first-half results, primarily due to slowing growth in Asia and abysmal performance in Europe excluding the United Kingdom, according to Morningstar analysts. Group sales increased by 2%, but group trading profit declined by 7.6% and group trading margin contracted to approximately 4.9% from 5.4% in the first half of last year. These results were slightly below our expectations, and we remain cautious that near-term headwinds could continue to weigh on results over the next 12-18 months.
However, we still think 
Tesco's scale and established reputation in the U.K., which support its narrow moat, appear to be intact, and we don't foresee material changes to our long-term assumptions or to our 380p fair value estimate. Tesco's shares trade at a 5% discount to our fair value estimate, and although a greater margin of safety would be ideal given near-term downside risks, we still think Tesco's valuation presents an attractive long-term risk-reward opportunity relative to other U.K. grocers.
WM MORRISON SUPERMARKETS (MRW)
Morrisons is the fourth-largest grocery store operator in the United Kingdom, with nearly 500 supermarkets and expectations to operate around 100 convenience stores by February 2014. After transferring coverage and reviewing our long-term valuation assumptions, our fair value estimate for Morrisons is now 285p, which implies a forward price/earnings of 10 times. We expect Morrisons to increase its total square footage by a low- to midsingle-digit percentage annually over the next 10 years, with a majority of the growth driven by convenience store expansion.
We also believe Morrisons has enough scale to maintain an underlying operating margin of slightly more than 5% over the next ten years, slightly below historical averages, but we think increasing competition could limit expansion opportunities.
SAINSBURY (J) (SBRY)
Sainsbury is one of the largest grocery store operators in the United Kingdom, with more than 550 supermarkets and 500 convenience stores. A vast majority of Sainsbury’s revenue comes from the sale of food products, although the firm also sells gasoline and general merchandise in multiple channels.
After transferring coverage and reviewing our long-term valuation assumptions, our fair value estimate for Sainsbury is now 315p, which implies a forward price/earnings of 11 times.
We believe Sainsbury has enough scale to maintain an underlying operating margin of approximately 4% over the next 10 years, roughly in line with historical averages.
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