J Sainsbury (LSE: SBRY)
Making money from Britain's cash-strapped shoppers has been very hard for some time. But Sainsbury's seems to be enjoying a purple patch. Its strategy of offering good food at fair prices has stuck a chord with customers, while its clothing range goes from strength to strength. And that's not all it has going for it. It's nicely hooked up to the fastest-growing parts of the grocery market convenience stores and internet groceries.
Here it is growing sales at 15%-20% per year. Its Sainsbury's Local stores offer it a bigger bang for its buck than its sprawling supermarkets. So it's good news that Sainsbury's is slowing down the roll-out of bigger stores and opening more smaller ones. As a result, profits and returns to investors are rising.
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Sainsbury's big rivals are struggling to keep up and are under attack from budget supermarkets Aldi and Lidl. While every pound of extra sales is hard won, Sainsbury's looks well placed to overtake Asda as Britain's second-biggest grocer. Tesco remains a long way ahead, but a lot of its sales are up for grabs. The shares have made steady progress this year, rising by just over 20%. But on 12.5 times next year's earnings with a 4.3% dividend yield, they are still worth buying.
Verdict: buy
EasyJet (LSE: EZJ)
We tipped airline easyJet as a buy a year ago. It's doubled in price since then. In April, we recommended taking some money off the table, which looks a bit hasty now. Those who held on have been rewarded with a 55% jump in the annual dividend to 33.5p, and a special one-off dividend of 44.1p per share that's an 11% income return over the year.
This has been driven by the airline's strong performance across Europe. Its planes have been nearly 90% full across the year. The company is reaping the rewards of not only offering relatively low fares, but also flying to where its customers want to go to (as opposed to minor airports miles away from anywhere), and offering services they want, such as allocated seating. Its lower costs give it a significant advantage over the big legacy flag carriers who are cutting back, which also means easyJet should be able to take a bigger slice of the market. It plans to grow its capacity by 5% next year.
The shares have become cheaper since April, as profit forecasts have risen faster than the share price, and on 12.7 times next year's earnings, they aren't ridiculously expensive. We wouldn't chase them higher here, but if you still own them, hang on.
Verdict: hold
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