Loblaw Companies Ltd (L.TO)

Grocers are under a lot of pressure due to perception of gouging, though inflation and increased energy costs are factors as well. His preference in the space -- the Energizer Bunny that just keeps going and going. Dominant player, great economies of scale.

Defensive idea. Should continue to do well. In uncertain times and economic conditions, you want certainty in your portfolio. Dominant grocery and pharmacy retailer in Canada. Surging earnings growth plus very few competitors. 

Private label strength is very strong. No Name label does well when consumers hunt for value. Shoppers, with its high margins, is the growth engine. Yield is 0.89%.

Gapped up recently. We're all paying more for groceries. If you look at a 20-year chart, you'll see that it was dead $$ for a long time. Fundamentally, this type of growth can't be sustained for a consumer staple. If you're in it you have to trim.

Is run well. Is innovative in retail, like buying ethnic supermarkets. Their challenge is that Walmart and Costco are competing. Loblaw is responding by building in rural areas where Walmart and Costco are not. Food inflation and their higher valuation make this unattractive.

Grocers are seeing a fantastic upswing in the technicals, particularly this one. Higher highs and higher lows both daily and weekly. You don't get a chart that's much better. 

Likes industries with few competitors, and Canadian grocers are in that space -- can protect margins and revenues. Tracking better than EMP.A, which he also owns.

Follows. Has done exceptionally well over last few years with food inflation. Real catalyst to unlocking profitability was when it acquired Shoppers Drug Mart -- a potent combination. Profitability has improved, generates significant free cashflow. Good business, fairly reasonable valuation. FCF yield is slightly north of 5%. Reasonable investment if you have your heart set.

He prefers ATD.

He's not into staples right now; missed the big run, as this name did very well. Caught up in the noise around tariffs, though its margins have widened a bit (may have "priced in" inflation, but it actually might be the suppliers and distributors taking the hit). That might be working its way out now.

This type of company is less loved by the market because the momentum stocks are doing so well.

Don't fixate too much on bread-fixing issue. Sticky inflation has helped margins. One to hold as a core defensive name in your portfolio. Not particularly overvalued, given all the franchises it encompasses.

For exposure in the space, he's pivoted to a name like ATD. Over the next 12 months he'd bet that ATD, and not Loblaw, would beat expectations.

It is doing well with increases in revenue growth. It is at its highest valuation in 25 years. He would consider Metro which has a better valuation and long term performer.

Stock split doesn't change his view of the fundamentals, which he likes. Leading grocer. Advantaged by all its discount banners, and consumers are gravitating toward these with all the economic uncertainty. Store brands like President's Choice and no name are resonating well. Shoppers DM has high organic growth prospects. Biggest loyalty program in Canada. PC Financial is another good segment.

Likes family-led companies, as they go for the long game.

Very good operators. Shoppers is probably the best part; great job of merchandising and executing. Trading at new all-time high today. Not cheap. But it's the best.

He wouldn't buy it today. It is expensive with a greater multiple than Metro or Empire. It is low margin business and can be considered a defensive stock. Costco is a great name in the space. The question also asked his opinion on buying it before or after the split. He would probably buy it before.

Likes the exposure to the business, which has operating leverage.

Likes its positioning in food retail and its pharmaceutical business. Expansion of pharmacists' duties is helping traffic. Discount banners have really been benefiting from softness in the economy, and they have plans to expand the discount footprint. Acquisition of TNT, an Asian chain, is going well.