Every little helps

Tesco has been one of the few success stories in my portfolio this year. After doing almost nothing for 12 months the share price has climbed steadily for the last 4 months and I am now at 20% profit.

Tesco is a NICE company to invest in. Its core business is defensive as people always need to eat. It is growing streadily in the UK (10%) and rapidly abroad where it has operations in central Europe and Asia.

The problem for Tesco is that as it branches more and more into non-food items the business will be exposed more and more to the uncertainties of consumer confidence. This will dilute the defensive qualities of the stock and lead to multiple compression.

Is this point important? Not yet but it is something that analysts do not have seemed to considered.

The best thing about about Tesco is the management. The leadership is dynamic, proactive and seem to know what the public wants. That is worth a lot.

Despite this I think Tesco is fully valued at 380p. The 2007 PE is about 16 and growth is 11%. I have decided to take some profits if it reaches 400p this year.

Tesco is quality but quality does not come cheap!