Loblaw Companies Ltd (L.TO)

Food retailing is defensive. Unlike Empire, Loblaw owns Shoppers which gives it an edge. Loblaw is expanding their health business, entering digital health with a new acquisition. The locations of both Loblaw and SDM are great and boast a 30% market share. People are becoming comfortable using online medical services, a trend that will continue across North America long term. The growth rate in their click-and-collect and grocery delivery may not be that strong, but will continue to rise. Trades at 14x forward earnings, reasonable. The dividend is a moderate 2%. Even if we enter high volatility, this sector and stock will be fine. (Analysts’ price target is $80.82)

(A Top Pick Jul 10/19, Up 6%) Relatively defensive with food and pharma. Nice defensive stock to own in this environment. Pantry loading with Covid, but they also have higher costs with protection equipment and higher labour costs. Leader in online grocery. The trading discount from Metro should narrow over time.

Are grocers safe? Yes, during this stay at home phase. Loblaw trades at 16x forward PE with a 7% growth rate. It's low beta at half the volatility of the TSX. Q2 will probably be good in terms of revenues. But he's concerned with their private label segment has required a lot of investment. Also, Loblaw is highly unionized and faces wage pressure. He prefers Metro a bit for its better valuation.

vs. Maple Leaf Foods MLF has exposure to commodity prices so it is a little cyclical. Loblaw offers slow growth but stable. MFI is probably getting hit by the coronavirus, but investing in plant-based protein which is promising. He wants to see MLF this plays out before investing.

Earnings miss? She owns Loblaws instead of Empire, who just commented how competition is increasing. The recent stock pullback might just be a re-calibration of earnings metrics following the release of an earnings miss.