Which supermarket is a buy?

With UK GDP -2% and the UK heading for its worst recession in 300 years defensive supermarkets are worth a look.

Charts (6)

UK GDP came is slightly better than expected, and at the lowest level since the financial crisis at -2% QoQ. However, the message is clear, the worst is yet to come. The UK is heading for its worst recession in 300 years and defensive stocks are worth monitoring. In a recession, supermarket stocks are a good buy. As jobs are lost, consumer confidence plunges and spending reined in, people continue to hit the supermarket, food budgets don’t get slashed that much even when other 

Retail sales according to the BRC were the worst on record in April dropping by almost a fifth. However, spending on food was up 6% as people continue to stockpile and cook in lockdown

So which supermarket?
Morrison reported a solid set of results this week, with its online business doubling in size. It also introduced a telephone delivery service and teamed up with Deliveroo to deliver groceries in 30 minutes by courier. This is just one example of how a supermarket has responded to the unprecedented challenge of coronavirus boosting Q1 revenues.
Ocado – the purely online supermarket is worth some consideration. The online boom in grocery sales is expected to bring long term gains for Ocado. 

Ocado is a rare winner in the coronavirus crisis, with the share price up 50% so far this year as more people shop online. As we saw with Morrison and the other supermarkets when they reported, online sales have jumped. However, these firms have also seen their costs spiral from hiring the extra people to manually sort these orders.  

Tech stock vs supermarket
Ocado has the distinct advantage of automated warehouses making scaling up online orders simple and without significant extra cost. The current climate has shone a light on Ocado’s high tech warehouse, with demand for these warehouses expected to pick up internationally. So far customers include US Kroger and France’s Groupe Casino. 

Levels to watch
Ocado trades firmly above its 20, 50 & 100 SMA on 4 hour chart at its all time high of 2090p A bullish chart, although firmly in overbought territory. A pull back could provide a good buying opportunity.
Resistance can be seen at 1841p (20 sma ) prior to 1700p (high 28th April and 50 sma)

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