Sainsbury (J) PLC SBRY

J. Sainsbury does not have an economic moat, but it is positioned to leverage the higher-growth convenience store and online grocery channels. Moreover, unlike competitors such as Wm. Morrison, the company has been very aggressive in defending its market share. However, Sainsbury remains at a meaningful scale disadvantage against narrow-moat Tesco and wide-moat Wal-Mart's Asda. Tesco this past year initiated major price investments, which we believe will make it difficult for Sainsbury and the other grocery store operators in the United Kingdom to  expand operating margins. Still, the company is accelerating nonfood categories and services, which should help offset some of the profit margin pressure we expect over the next few years.