Loblaw Companies Ltd (L.TO)

He had a very large position. It no longer meets his hurdle for growth and value.

Canada’s largest grocer. After their previous troubles they have straightened out and are executing very well. It is a solid hold. Competition is the biggest risk, but there is always risk as Wal-Mart continues to expand.

A very defensive classical consumer staple stock. Provides investors with a very steady and predictable growth and a pretty modest, but growing dividend. The acquisition of Shoppers provides them with not only cost and revenue synergies, but also gives them exposure to the higher margin profile of the pharmacy/drug retail business. They are also diversified with Presidents Choice Financial, Joe Fresh apparel stores and their REIT. Trading at 19X forward earnings, but you are paying for steady growth and a defensive name. Dividend yield of 1.51%.

There was a big selloff because the Québec government is putting generic drugs up for auction. This company has a generic drug manufacturing division, and that is probably going to bring down the profitability of generic drugs and pharmacies in Québec. There is a worry that other governments may follow their example. On the other side, the grocery business is doing very well.

Have about a 30% share in grocery retail. Competitive dynamics this past year have been improving. Square footage growth is moderating compared to prior years. Growing at about 1.2%-1.3% which is very favourable for retailers in general. The refurbishing of their stores is largely behind them and we are seeing more cash flow generation from the grocery business. Also, likes Shoppers which they acquired a couple of years ago. Dividend yield of 1.42%.

Has had quite a run. It looks somewhat expensive here. Thinks it is more likely to go sideways. A very safe stock, but doesn’t think you are going to see the kind of climb that you saw through 2014-2015 repeated.

Really liked the acquisition of Shoppers and had thought it was extremely cheap in the $40s. It is now doing really, really well in a weak market, and he would be using it as an opportunity to Sell in order to Buy names that are still doing well but are severely beaten up.

Food as well as drug retailer. Grocery square foot growth is moderating now that Target has exited. Retailers now have more pricing power to pass through increases to consumers. L-T are closing non-productive stores. With lower energy prices, consumers may be spending more at the grocery store. Implementing their SAP system is largely behind them and should show benefits. She likes the shopper’s component. She is seeing synergies and cross selling products. There will be more private label flow through. As they pay off debt we should see benefits to the bottom line.

(A Top Pick March 5/14. Up 60.55%.) He likes the story for all Canadian grocery stores. This used to be a grocery store, but is now basically a holding company. Only 36% of sales is attributed to groceries. 37% of all sales now are from people who have their loyalty card.

These more defensive plays tend to do well during the summer. This stock broke out above resistance. It was consolidating for the better part of the year at around $65, followed by a tremendous break out. The previous resistance of around $65 will now act as support, so you would expect a retest. If you can get a closer to the $65 level, that would be great, but he doesn’t think it could fall that fast or that hard during its period of seasonal strength. $70 would be an ideal price from a short-term perspective.

It has had a pretty good move, even if shaky as of late. It is entitled to a bit of a rest. It does not have much upside potential according to its fair market value. It is not one of his go-to stocks. If times get tough, people are going to continue to go to L-T. They may squeeze more value out of Shoppers and then it would go up more.

Has gone through a refurbishing reinvestment program into its stores, as well as implementing SAP. They are starting to see the operational efficiencies and benefits from that. Likes their acquisition of Shoppers a year ago. Pharma retail is a more attractive business than grocery retail given the aging demographics. Same-store sales of groceries in the last quarter have improved, and they are also doing well on the Pharma side. Dividend yield of 1.58%.

The optimism on this comes from the Shoppers side of things and its potential synergies. This has had a good run. In his view there are a lot of good synergies forthcoming. Lots of opportunity. Trading at 18X earnings which is a bit high right now, but it is on the growth.

George Weston (WN-T), Loblaw’s (L-T) or Empire (EMP.A-T)? Of these 3 this would be her preferred vehicle. Really liked their Shoppers acquisition. It fits well demographically and has good locations. They went through a big IT spend over the last couple of years which is largely behind them now, so some of the cost benefits are now coming through. This will mean more free cash flow. Have been starting to announce slight dividend increases, which is a signal that management is comfortable going forward. Expects they will be repurchasing stock to bring the Weston share back above the 50% level.

(A Top Pick May 6/14. Up 36.18%.) This was picked right after Shoppers was closed. Stock had pulled back because of weak numbers on their grocery side, and she felt it was a good time to get in. We are still going to see a lot of benefit coming through from the acquisition. There will be an increasing free cash flow. She has a price target of about $70 in 12 months.